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I withdrew from my business checking through an ATM to pay myself. I did set up an Equity account: "Owner's Pay & Personal Expenses". Do I use Transfer to make my accounts balance correctly?
From: Checking
To: Owner's Pay & Personal Expenses
Is there anything else that I need to do?
When the ATM withdrawal comes through your bank feed just select your Owner's Pay & Personal Expense Account and Add the Expense. The balance of this account is tracked on your Balance Sheet. You should also add a description to identify this as an Owner Draw.
@Regina_Lend_A_Hand_Accounting
You should also add a description to identify this as an Owner Draw, as you will need to calculate your payroll tax liability for this draw at some point.
there is no payroll tax for equity draws
No there is personal quarterly estimated taxes paid, calling that (if that is what you mean) payroll taxes is a misnomer and confuses the issue.
This is where you made the mistake for misunderstanding how Taxes will apply: "on any Owner Salary Draws taken during the tax year."
This is a Pass Through Entity. Taking no funds, still means the Reportable taxable income is passed from the Sched C to the 1040 for the Owner to report and pay taxes against. That's why taking funds or not taking funds is not the Taxable Event, and it is not Owner Pay. It is the owner taking any assets (funds) whenever they want to, because it all is theirs, already. Taxes are computed on that current year, and the funds in the business that are available to take might be from this year, or a combination of this year and previous years' activities.
That's why Rustler has it right = there is no Taxes owed because of draw activity. This is not Salary, nor Wages earned, nor Owner Pay, if this is a sole proprietorship. These words do not apply.
For this: "The quarterly reporting requirements are something entirely different. Some business owners only make EFTPS payments on a quarterly basis, I agree."
You seem to have confused Quarterly Reporting (such as 941) with 1040ES as Quarterly Estimates. Notice the Tax Form is related to the reason the payment is being made. 941 is Payroll. 1040ES is Personal. A sole proprietorship has no payroll for the Owner.
"Doing the calculation on a monthly basis can reduce year-end taxes."
Calculations do not Change taxes. Taking or not taking funds doesn't affect taxes. Calculating so that you can meet your Estimated Payments certainly helps when it comes time to file your 1040.
:)
With the tax law changes in Dec 2017, more and more C and S corps are stepping down to LLC or even to Sole Proprietorship. Pass Through entities are an advantaged tax entity type.
Good feedback, thank you. What are your thoughts as to why a business owner should consider changing their business formation from an S or C Corp to an LLC or Sole Prop considering the new 2017 tax law changes?
Does this rule apply for an S Corp as well? Atm withdrawl go to Owners expense/Draw
and if he pulled money out of a non-participating ATM there is a $3 charge, I normally would put that the bank fees
Senario
ATM withdrawal $303.00
$300.00 Owners draw
$ 3.00 Bank service fee
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