Owner’s draw

An owner’s draw is money an owner takes out of an unincorporated business — a sole proprietorship, partnership, or LLC — for personal use. Rather than being paid a wage, the owner simply withdraws funds the business has earned. Each draw reduces owner’s equity on the balance sheet, because it lowers the owner’s remaining stake in the business.

Critically, a draw is not a business expense. It does not appear on the profit and loss statement, it is not tax-deductible, and it is not payroll — no wages are recorded and no payroll taxes are withheld on it. A draw moves money the business already owns into the owner’s hands; it doesn’t change the business’s profit.

Recording draws in the right place matters because miscategorizing them quietly distorts the picture. Posted as an expense, a draw understates profit and overstates costs — the P&L lies and the tax figures built on it follow. Personal spending run straight through the business and never reclassified as a draw is one of the most common reasons a set of books needs a cleanup.

Kept correctly, draws flow to an equity account where they belong, the P&L stays clean, and the balance sheet shows the owner’s true remaining stake — the foundation any advisory conversation about how much you can safely take out has to rest on.

Owners of sole proprietorships, partnerships, and most LLCs take draws, not a salary. Owners of an S corporation are different: the IRS requires them to pay themselves a reasonable W-2 salary through payroll, and they may take additional distributions on top. Which structure you should use, and how to split pay between salary and distributions, is a tax matter with real consequences — we keep the bookkeeping correct for whatever you choose, but the salary-versus-draw decision is confirmed with your CPA or EA.