How Do I Pay Myself As A Sole Proprietor?

  • John A. Osborne
  • Feb 13, 2023
Small Business Insurance Ohio

As a sole proprietor, you are the owner and operator of your business. You are responsible for all aspects of your business, including paying yourself. Paying yourself as a sole proprietor can be a bit tricky, but it’s important to do it right to avoid any legal or tax-related issues. In this article, we will discuss several topics related to paying yourself as a sole proprietor.

What is a Sole Proprietorship?

A sole proprietorship is a type of business where the owner is responsible for all aspects of the business. This means that the owner is personally liable for any debts or legal issues that the business may face. A sole proprietorship is the simplest and most common form of business structure, and it is often used by freelancers, consultants, and small business owners.

How Do I Pay Myself as A Sole Proprietor?

As a sole proprietor, you can pay yourself in several ways:

  • Drawings: You can take money out of your business account whenever you need it. This is called a drawing. However, you should keep in mind that drawings are not considered salary or wages, and they are not tax deductible.
  • Salary: You can pay yourself a salary, just like any other employee. This means that you will need to set up a payroll system, withhold taxes, and file payroll tax returns.
  • Distributions: You can pay yourself a distribution from your business profits. Distributions are not subject to payroll taxes, but they are subject to income taxes.

What Are the Tax Implications of Paying Myself as A Sole Proprietor?

As a sole proprietor, you are required to pay self-employment taxes on your net income. This includes any money that you pay yourself, whether it’s through drawings, salary, or distributions. Self-employment taxes include both Social Security and Medicare taxes, and they are calculated based on your net income.

If you pay yourself a salary, you will also need to withhold federal income tax, Social Security tax, and Medicare tax from your paycheck. You will also need to file quarterly payroll tax returns and an annual Form W-2.

If you pay yourself through distributions or drawings, you will need to report the income on your individual tax return (Form 1040). You may also need to make estimated tax payments throughout the year to avoid penalties.

What Should I Keep in Mind When Paying Myself as A Sole Proprietor?

When paying yourself as a sole proprietor, it’s important to keep accurate records and separate your personal and business finances. Here are a few things to keep in mind:

  • Track your income and expenses: Keep track of all the money that comes in and goes out of your business. This will help you calculate your net income and determine how much you can pay yourself.
  • Set up a separate business bank account: Keep your business finances separate from your personal finances by setting up a separate bank account for your business.
  • Consult with a tax professional: Taxes can be complicated, especially for small business owners. Consider consulting with a tax professional to help you navigate the tax implications of paying yourself as a sole proprietor.


Paying yourself as a sole proprietor can be a bit complex, but it’s an important part of running your own business. By understanding the different ways to pay yourself, the tax implications, and the importance of keeping accurate records, you can ensure that you are paying yourself in a way that is legal and financially beneficial.

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