Guide

Owner's draw vs salary: how to pay yourself from your business

How owners pay themselves by entity type: draws for sole proprietors and LLCs, salary plus distributions for S corps, and how each is recorded in the books.

How you pay yourself depends on your entity. Getting the bookkeeping right is mostly about not calling it an expense.

Sole proprietor or single-member LLC

You take an owner's draw: a transfer from the business account to yourself. It is not an expense and not taxed as a separate event; you are taxed on the business profit regardless of how much you draw. Record draws as equity.

Partnership or multi-member LLC

Distributions to members, tracked per member in capital accounts. Guaranteed payments (a fixed amount for services) are an expense to the partnership and income to the member.

S corporation

Salary through payroll (an expense, with payroll taxes), then distributions (equity). The IRS requires the salary to be reasonable before distributions. See S corp bookkeeping.

In ProfitBooks

Transfers to your personal account are categorized as owner draws or distributions. Payroll runs are officer compensation. Neither shows up as an ordinary expense on the profit and loss, which is correct.

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