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CLC4
Level 1

Owner's Pay & Personal Expenses vs. Owner's Draw

Is there a difference between Owner's Pay & Personal Expenses and Owner's Draw? We are an S Corp and now pay ourselves as employees through payroll. I was told to "put any other personal purchases as owner's draw" but I'm confused about what that is. Do I categorize personal purchases/extra pay with the business account as Owner's Pay & Personal Expense as we've done in the past? Or do I have to create an Owner's draw for those things? If so, then what should Owner's P&P Exp be used for?

1 Comment
john-pero
Community Champion

Owner's Pay & Personal Expenses vs. Owner's Draw

Above your reasonable w2 wage as defined by the irs you receive distributions that are commonly misconstrued as dividends. At the end of the day, after payroll expense, all, all net profit or loss is passed through to your personal return. Similar to an LLC any distribution to you other than wages is equity movement. Do not confuse it with expenses.

 

 

As long as you are a single shareholder s corp treat all equity in and out as contributions and draw. But if you have multiple shareholders, treat personal business purchases as loans and settle up these loans annually.

 

You should avoid making personal purchases with business funds like the plague. 

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