I have a customer who is a sole proprietor and he has been taking monthly draws. I know it is taxable to him personally, just wondering where to put it on the form. Is it OK to just be in Other Income?
No, sole props get taxed on the net profit at the bottom of the Sch C, you dont input those draws anywhere.
@Jen16 You need to go back to class.
That's what I thought but I was doing some research to verify that and I found a bunch of responses that said owner's draws were taxable not on the schedule C but on their personal income taxes? Tried to find clarification on the IRS site and didn't have a lot of luck.
Yes I am aware. The information that I was reading referenced it needing to be shown on the return other than on the C. I will go back and revisit.
I appreciate the responses. I did think that the draws did not have to be claimed as the owner was already being taxed on his profit. However something I read made me second guess and I wanted to get confirmation either way from people who may have more tax experience than I.
"I found a bunch of responses that said owner's draws were taxable not on the schedule C but on their personal income taxes?"
Those people are wrong. I teach it this way: For the Sched C person, you are your own business. Everything is already yours. Taking the money out of the business, or not, is not the taxable event. Making money is the taxable event. What you do with it is up to you, because once you report that year's business operations on the Schedule C, it's already yours and already taxed.
Just a note: this is one of the things Dave Ramsey often gets wrong, when he explains this to his small business listeners.
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