Partner Draw

What is a partner draw?

A partner draw is money withdrawn from a partnership by a partner for personal use. Unlike employee wages, draws are not payroll and are not subject to withholding. Draws reduce the partner's capital account balance. Partners are taxed on their share of partnership income regardless of draws taken. The draw simply moves money from the business to the partner's personal accounts.

Managing partner draws

Establish a draw policy in your partnership agreement. Common approaches include equal draws, draws based on ownership percentages, or draws based on profitability formulas. Many partnerships allow regular monthly draws with a true-up at year end. Set draws at sustainable levels that leave adequate working capital. Uneven or excessive draws can create tension among partners and cash flow problems.

Tax implications of draws

Draws themselves are not taxable events. Partners owe tax on their share of partnership income whether or not they withdraw it. Taking draws in excess of your basis can create taxable gain. Partners must make quarterly estimated tax payments since there is no withholding on draws. Coordinate with your accountant on timing and amounts to ensure you meet tax obligations without unnecessary cash flow disruption.