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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Can someone please explain to me why owners draws are not considered

Customer Question

Can someone please explain to me why owners draws are not considered taxable in come in a single member LLC that is taxed as a sole proprietorship. I know it is considered equity but how is it that this money can be drawn tax free. How is it accounted for? Im trying to obtain a mortgage and the loan officer does not understand why my owners draws are not on my tax return. Thank You.
Submitted: 8 years ago.
Category: Tax
Expert:  Merlo replied 8 years ago.
Hello digler,

You draws are taxable income.

With a single member LLC, all of the income from that LLC flows through to the single owner and is reported on his tax return on Schedule C. So all of the money that you make for the year ends up being reported on Schedule C, including any draws that you may have taken throughout the year. The draws themselves are not reported as a separate item, they are simply all part of the income reported for the year on Schedule C.

If you have taken draws from the LLC and not included those draws in your taxable income, then your taxes have not been filed correctly.

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Thank you digler.