Q: How Do I Pay Myself as the Owner of a Sole Prop?

A sole prop is a business that’s owned by one person and managed by that same person. It’s the most popular structure folks use when they’re trying to start a company because it’s easy to set up and gives the owner total control.

Paying myself as a sole prop

If you’re a sole prop, the IRS sees you as self-employed. As a result, you would most likely pay yourself through something called an owner’s draw. A draw allows you to take money out of your business for personal use.

Unlike employee paychecks, an owner’s draw doesn’t deduct taxes. Instead, you’ll have to pay those taxes through your personal income tax return. Keep in mind that you may also need to pay estimated taxes throughout the year before you file your return. It’s always best to chat with an accountant to make sure you’re drawing the right amount and getting those taxes in on time.

Curious about other business structures? Here’s a quick breakdown:

Business structureHow to pay yourself Tax Return
Sole proprietorshipOwner’s drawSchedule C (Form 1040)
LLC with one memberOwner’s drawSchedule C (Form 1040)
LLC with multiple membersDistributive shareSchedule K-1 (Form 1065)
PartnershipDistributive shareSchedule K-1 (Form 1065)
S corporationDistributive shareSchedule K-1 (Form 1065)
C corporationDividendsDividends income on Form 1040
Corporate OfficerEmployee wages (if you perform more than minor services for the business)Form W-2

Comments

  • Ingrid

    I love using Gusto for my tutoring company, Tampa Bay Test Prep even as a single-member LLC. It gives me peace of mind every payroll. And every time I see that email from Gusto, I feel happy inside knowing that I’m getting paid, and my taxes are getting paid on time.

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