Owner's Draw
An owner's draw is money a business owner takes out of the business for personal use. It's not a salary or wage — it's a withdrawal from the owner's equity in the company.
Owner's Draw Definition
An owner's draw (or owner's withdrawal) is money taken out of a business by the owner for personal use. Unlike a salary, draws aren't subject to payroll tax withholding — but the underlying business income is still taxable.
Owner's Draw vs. Salary
How Draws Work
1. Owner writes a check or transfers money from business to personal account
2. Transaction is recorded as a debit to Owner's Draw (equity account), credit to Cash
3. At year-end, the draw balance reduces owner's equity on the balance sheet
4. Draws are NOT a business expense — they don't appear on the P&L
Tax Implications
Draws themselves aren't taxed. But the business income that funds the draws IS taxed on your personal return. For sole props: you pay income tax + self-employment tax (15.3%) on net business income, regardless of how much you actually drew out.
How Draws Show Up in QuickBooks
Record draws to an Owner's Draw equity account. In QBO: create an equity account called "Owner's Draw" and categorize each withdrawal there. At year-end, your accountant will close this to retained earnings.
FAQ
Q: How much can I draw from my business?
A: Legally, as much as you want (for sole props and partnerships). Practically, don't draw more than you can afford — keep enough to cover expenses, taxes, and a cash reserve.
Related Terms
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