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Owner's draw

Jen16
Level 2

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?

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9 Comments 9
Just-Lisa-Now-
Level 15
Level 15

No, sole props get taxed on the net profit at the bottom of the Sch C, you dont input those draws anywhere.


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jeffmcpa2010
Level 11

@Jen16 You need to go back to class. 

Jen16
Level 2

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.  

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sjrcpa
Level 15

Schedule C is part of their personal income taxes.

The more I know, the more I don't know.
Jen16
Level 2

Thanks for taking time out of your busy day to be rude.  

Jen16
Level 2

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. 

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Jen16
Level 2

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.  

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qbteachmt
Level 15

"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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Jen16
Level 2

Thank you that is very helpful!