Owner’s draw is considered taxable income for sole proprietors, partners, and LLC members. Profits distributed as trust distributions are taxed. Drawings are not tax-deductible as they are the owner’s personal income. Do owner distributions count as income? Distributions paid from profits count as owners’ taxable income. Distributions after profits are considered “after-tax”.
In most cases, you must be a sole proprietor, LLC member, or partner to take owner’s draws. The amount withdrawn does not affect taxes due, which are calculated based on profit. For corporations and incorporated LLCs, shareholders get dividends from profits and distributions. Excess distributions can mean taxable capital gains.
Draws debit the drawing account and credit cash, reflecting a deduction of capital from total equity. As personal income, draws are taxed. An LLC member loan is not taxable income unless interest exceeds $600. Then a 1099-INT applies. Owners of corporations don’t take draws, but get taxable salaries and dividends instead.