Owner's draw vs. salary — how do I pay myself as a small business owner?

I get this question from almost every new small business owner, usually phrased as "how much should I pay myself." The honest first answer is narrower than that — before it's a "how much" question, it's a "which method" question, and your entity type mostly answers that one for you.

Owner's draw — sole props, partnerships, most LLCs

If you're a sole proprietor, in a partnership, or run a standard single- or multi-member LLC that hasn't elected S-corp status, you take an owner's draw — a transfer from the business account to your personal account. It's not a payroll expense, doesn't get a paycheck or a W-2, and doesn't have taxes withheld at the time you take it. You still owe self-employment and income tax on the business's profit; the draw itself is just moving cash you've already earned, not the taxable event.

Salary — S-corps and C-corps

If your LLC has elected S-corp status, or you run a C-corp, and you're actively working in the business, the IRS requires you to run yourself through actual payroll and pay yourself a "reasonable" salary — taxed and withheld like any employee's paycheck. Any additional profit above that salary can then be taken as a distribution, which isn't subject to self-employment tax — a real tax advantage, and also exactly why the IRS pays attention to whether the salary is genuinely reasonable for the work being done, not set artificially low to dodge payroll taxes.

How each one actually shows up in the books

• Draw: booked to an owner's equity/draw account, reducing your equity in the business — never shows up as a business expense on the P&L
• Salary: runs through payroll like any employee, hits the books as a real wage expense, with payroll tax filings behind it
• Distributions (S-corp): booked separately from salary, also to equity, and need to be tracked distinctly so your CPA can see both numbers clearly at tax time

Your entity type picks the method. Your CPA picks the number.

What's actually mine to answer vs. a CPA's call

I can tell you which method applies to your entity and set the books up to book it correctly — draws separated from expenses, payroll wired up right, distributions tracked distinctly from salary. What counts as a "reasonable" S-corp salary for your specific role and industry, and how much to actually pay yourself, is a conversation for your CPA. Get that wrong and it's the kind of thing that gets reclassified in an audit; get the books wrong around it and your CPA can't see clearly enough to advise you well in the first place.

See what I actually need from you monthly for how owner payments and payroll fit into the regular rhythm of the books, or the full bookkeeping checklist for the whole cadence.

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