Owner's drawing

The Owner's Drawing Account is sometimes known as either the Personal Account, the Withdrawal Account, the Directors Account, or the Partners Account. This type of an account is nothing but a convenient way to distribute business profits to the owner or partners. US tax laws tend to collect income tax from small business owners based on the profits made before accounting for the owner's salary. Any salary drawn by the owner cannot be treated as an expense to the business for the purposes of calculating taxable profits. Therefore, owner's draw is a popular form of paying the owner or partners without causing tax complications.

If, instead you choose to pay the owner or partners a salary, you will have the following disadvantages:

• You have to exclude this from other employee's salaries, when calculating tax-deductible business expenses.

• You will not have the flexibility of varying the owner's drawing from month-to-month depending on the profitability of the business.

Note

Whether...