The two questions that need to be asked: (1) What is the owner's status in the business? (2) How does the owner take money from the business?
What is my status in the business?
Your status is either as an owner or as an employee, depending on the type of business:
- Sole proprietorship - you are the owner, not an employee
- Limited liability company - you are most likely an owner (member), not an employee, unless you elect to be taxed as a corporation (see below).
- Partnership - you are an owner, not an employee
- Corporation - you are an employee. You are also a shareholder and you are also on the board of directors, so you have multiple roles.
How Do I Take Money From My Business?
If you are in business, you expect it will provide you an income (at some point, anyway). So how do you get money from your business? It depends on the type of business:
- If you are an owner, you can take a draw from the business for personal expenses. This draw is not a deductible business expense; it's just money you take from profits (assuming there are profits!) to pay personal bills. When you take a draw, you should write a check to yourself from the business checking account and deposit it in your personal checking account.
- If you are an employee, you take a salary from the business. Your salary must be reasonable, and it is considered a deductible business expense.
- Corporate officers who are shareholders may also receive dividends as designated from the profits of the business.