Owner's Draw

Hi, June!

Sure do enjoy your column! Am curious: when using “owner’s draw,” in QBooks, wouldn’t that be considered income to me?

Thanks for your help! If that is somewhere in your blog, already addressed, thanks for pointing that out.

Warmest regards,
Rhonda
Anacortes, WA


Hi Rhonda,

Glad you like my column. Thanks.

I will assume you are a sole proprietor. And there is no "owner's draw" for a sole proprietor. The money you take out of you business is not your profit.

Many self-employed people have a fuzzy idea about their own business profits. They think that the weekly, monthly, or occasional checks they write to themselves -- called owner's draw in the corporate world - is their income or their salary or their profit. They are wrong.The checks a self-employed makes out to herself have no bearing whatsoever on her income, expenses, profit, or taxes. Whether you write yourself a $100 or $1,000 check every week you are doing nothing other than altering cash flow by moving money from one place to another. It's called draw because you are drawing money away from someplace.

Your income, better called "net profit," is what is left after you subtract business expenses from gross income. Has no relationship to how much money you took out or put into your business.

BTW -- for indies I urge Quicken. It is much easier than QuickBooks. Visit here Quicken Categories For Indies and I'll send you a 7-page list of income and expense categories suitable for an indie business using Quicken. It's helpful even with QuickBooks.

Best,
June