Money a sole proprietor, partner, or LLC member takes out of the business for personal use. It is not a salary and is not itself taxed; the owner is taxed on the business profit whether or not it is drawn.
Draws are for sole proprietors, partners, and default LLCs, with no withholding. Salary is for S and C corporation owners, run through payroll with withholding. Choosing an S election converts you from one to the other.
Owners often assume they are taxed on what they take. They are taxed on what the business earns. A draw reduces equity, not taxable income, and it does not have withholding, which is why estimated payments matter.
Not directly. The profit is taxable; the draw is how you move it. S corporation owners are different: they must take a reasonable salary through payroll before distributions.
Source: IRS Publication 334
Last reviewed September 17, 2026. Tax rules change; confirm current law before acting.
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