How to pay yourself as a sole proprietor

When you have a job, your employer pays you a wage and takes tax out of each paycheck. When you work for yourself as a sole proprietor, nobody does this. There is only money in the business account.

You pay yourself by moving money from the business to yourself. This is called an owner draw. It is simple to do. But the amount you draw does not change your tax. You pay tax on the profit of the business.

The short version

• A sole proprietor pays himself or herself with owner draws, not a salary.
• A draw is not a business expense. You cannot deduct it (IRS Publication 334).
• You pay tax on your business profit, whether you draw it out or leave it in the account.
• Nobody withholds tax from a draw. You set money aside and pay estimated tax.
• A single-member LLC that has not chosen to be taxed as a corporation works the same way.

Words to know

• Profit: what your customers paid you, minus your business expenses.
• Owner draw: money you move from the business to yourself for personal use.
• Owner contribution: personal money you put into the business.
• Owner’s equity: the part of the business that belongs to you. A draw makes it smaller. A contribution makes it larger.

You and the business are one taxpayer

The IRS says it plainly: “You can’t deduct your own salary or any personal withdrawals you make from your business. As a sole proprietor, you are not an employee of the business” (Publication 334).

For income tax, the IRS also ignores a single-member LLC as separate from its owner, unless it elects to be treated as a corporation (IRS, LLC).

So a draw is not income and not an expense. It is your own money moving from one account to another.

Why nobody withholds tax

You pay two federal taxes on your profit:

• Income tax, at your normal rates.
• Self-employment tax, which is Social Security and Medicare. The rate is 15.3% and it applies to 92.35% of your net earnings (IRS Topic 554). See self-employment tax explained.

Because nobody withholds these, you usually must make estimated tax payments if you expect to owe $1,000 or more when you file (IRS, Estimated taxes). See quarterly estimated taxes for the dates.

How much to draw

There is no IRS rule for the size of a draw. A simple method:

1. Start from your profit, not your bank balance. Part of the balance is tax you will owe.
2. Set tax aside first. Move a share of each payment into a separate savings account. See how much to set aside for taxes.
3. Keep a cushion of a few months of business costs. Our cash runway calculator can help.
4. Draw the same amount on the same day each month. In a good month, add to the cushion.

How to record a draw

In your books, a draw lowers your owner’s equity. It must not show on your Profit and Loss. A common mistake is to put the monthly transfer in a “salary” or “wages” expense category. This makes your profit look smaller than it is. Read more in how to record owner draws and contributions.

Pay draws by bank transfer from the business account. Do not pay personal bills from it. This keeps a clean record.

An example

Dev is a freelance web developer. (He is an example, not a real person.) In 2026 his clients pay him $110,000. His business expenses are $26,000. His profit is $84,000.

Each month Dev moves $4,000 to his personal account. By December he has drawn $48,000.

The draws do not change the tax. If Dev drew nothing, he would still pay tax on $84,000. Income tax comes on top.

A Righto tip

In Righto, give the monthly transfer to your personal account the Owner Draw category. It then lowers your equity and stays off your Profit and Loss report. You can also ask your own AI agent, such as Claude Code, how much profit you have made so far this year. See how agents work with Righto.

Common questions

Can a sole proprietor pay himself a salary? Not in the tax sense. You can draw a fixed amount each month, but it is still a draw. It is not deductible and no tax is withheld.

Do I pay tax on my draws? No. You pay tax on your profit. Draws only move money to you.

Is it different for other business types? Yes. Partners do not get a Form W-2, and corporate officers are usually employees paid wages (IRS, Paying yourself). Ask a tax professional about your structure.

What to do now

1. Open a separate savings account for taxes.
2. Move a share of each payment into it.
3. Choose a draw amount and a date each month.
4. Check how last year’s transfers to yourself are categorized. Move any in an expense category to owner draws.
5. Put the estimated tax due dates in your calendar.

Righto is free, easy to use and needs no account.

Sources

• Publication 334, Tax Guide for Small Business, IRS
• Limited liability company (LLC), IRS
• Topic no. 554, Self-employment tax, IRS
• Estimated taxes, IRS
• Paying yourself, IRS