Owner Draw

What is an owner draw?

An owner draw is money taken out of the business by an owner for personal use. In sole proprietorships, partnerships, and LLCs, owner draws are the primary way owners pay themselves. Draws are not payroll and are not subject to withholding. They reduce your equity in the business. Understanding draws helps you manage cash flow and maintain appropriate business capitalization.

Draws vs salary

Sole proprietors and most LLC members take draws because they cannot be employees of their own businesses for payroll purposes. S corporation shareholders must take reasonable salary first, then can take additional amounts as distributions. The distinction matters for tax planning. Draws themselves are not taxable events; the underlying business income is taxable regardless of whether you withdraw it.

Managing owner draws responsibly

Set a regular draw schedule rather than taking money randomly. Leave enough cash in the business for operations and upcoming obligations. Track draws carefully as they reduce your basis in the business. Taking draws that exceed your basis can create taxable gain. Coordinate with your accountant on draw amounts, especially for S corporations where salary and distribution balance matters.