Owner draws

Sole proprietors, partners, and members of LLCs taxed as sole proprietorships or partnerships take money out this way. Owners of corporations who work in the business are generally paid wages through payroll. Other payouts may be distributions (S corporations) or dividends (C corporations). Draws and S corporation distributions are generally not taxable when taken; S corporation distributions are generally tax-free up to stock basis. Pass-through income and wages can be taxable separately, while C corporation dividends are generally taxable.

This amount reduces your owner’s equity on the balance sheet. It is not an expense and does not appear on the profit and loss statement. The cash still leaves the bank account, so it belongs in a cash forecast. Draws are recorded in their own equity account, separate from business expenses.

Mixed personal and business spending makes books harder to read. Lenders often ask questions when they see unclear records.