If an owner of a business takes out money from the business as his own wages, is that considered as 'drawings'

Question

I need an accurate and helpful answer from Pros. Thanks! :)

Answer 1

If the company is incorporated then the $$ must come out as either Salary or dividends.  If it is a registered company than the money is considered drawings.

Answer 2

If the business is considered a sole proprietorship or a partnership (for tax purpose classification) this is considered "drawings".  A partnership could also have "guaranteed payments" that are considered a guaranteed wage and is reported specific to a partner on the tax return in addition to his or her drawing (or split in the net profits paid out of the company in cash or other property). A corporation either taxed as a C or S will pay the "draw" as a wage for the part that is "reasonable compensation" for his or her services. Any other funds will be either a dividend (C corporation) or a distribution (S corporation).