Can I Write Myself a Check From My Business Account?

Business owners often wonder if they can write a check to themselves directly from their company’s bank account for personal use. This action is generally permissible but involves specific financial, legal, and tax considerations that vary by business structure. Understanding these implications is important for maintaining clear financial records and ensuring compliance. This guide clarifies how owners can pay themselves from a business.

Understanding Permissibility and Basic Mechanics

Business owners can generally write checks from their business account to themselves. Ensure sufficient funds are available to cover the check amount. The check’s memo line should clearly indicate the payment’s purpose, such as “owner’s draw,” “reimbursement,” or “salary payment,” for clear financial records.

Maintaining clear financial separation is important for any business, even when moving funds between personal and business accounts. This practice helps prevent the commingling of funds, which can complicate accounting and tax reporting.

Business Structure and How You Pay Yourself

The method an owner uses to pay themselves varies significantly depending on the business’s legal structure. Each entity type has specific rules regarding how owners can draw funds and how these payments are treated for accounting and tax purposes. Understanding these distinctions helps ensure proper financial management and compliance.

For a sole proprietorship, the owner and the business are considered the same entity for tax purposes. Payments to the owner are referred to as “owner’s draws” and are not considered wages or deductible business expenses. These draws reduce the owner’s equity in the business, reflecting a withdrawal of capital or accumulated profits.

In a partnership, partners receive payments through “guaranteed payments” or “owner’s draws.” Guaranteed payments are fixed amounts for services or capital provided, treated as ordinary income. Owner’s draws are withdrawals that reduce partners’ capital accounts.

A Limited Liability Company (LLC) offers flexibility in how it is taxed. By default, a single-member LLC is taxed as a sole proprietorship, and a multi-member LLC is taxed as a partnership. In these default scenarios, owners take “owner’s draws” or “guaranteed payments.”

If an LLC elects to be taxed as an S-Corporation, owners who actively work in the business must receive a reasonable salary paid as W-2 wages. Any additional payments can be taken as distributions, which are generally tax-free to the extent of the owner’s basis in the company.

For a C-Corporation, owners are considered employees of the corporation and must receive W-2 wages. The corporation can deduct these salaries as business expenses. Beyond salary, C-Corporation owners can also receive dividends, which are distributions of the corporation’s profits to its shareholders.

Tax Implications of Owner Payments

The tax consequences for business owners depend directly on the chosen payment method and business structure. Different payment types are subject to varying federal income tax and self-employment tax rules.

For owner’s draws taken by sole proprietors, partners, and LLCs taxed as such, these withdrawals are not deductible business expenses. The owner is taxed on their share of the business’s net profit, regardless of distribution. These owners are also responsible for self-employment taxes on their net earnings. The self-employment tax rate covers Social Security and Medicare contributions, applied to net earnings up to an annual limit ($176,100 for 2025).

Salaries paid to S-Corporation and C-Corporation owners are W-2 wages. These wages are subject to federal income tax withholding, as well as Social Security and Medicare taxes, which are split between the employer and employee. For the corporation, these salaries are deductible business expenses, reducing the business’s taxable income.

Distributions from an S-Corporation are generally not subject to self-employment taxes, provided a reasonable salary has already been paid. These distributions are tax-free to the extent of the owner’s adjusted basis in the S-Corporation stock. In contrast, dividends from a C-Corporation are subject to “double taxation.” The corporation first pays income tax on its profits, and then shareholders pay tax on the dividends they receive.

Owners who do not receive W-2 wages from which taxes are withheld, such as sole proprietors and partners, need to make estimated tax payments throughout the year. These quarterly payments help cover their income tax and self-employment tax liabilities, preventing underpayment penalties at year-end. Estimated tax payments are required if an individual expects to owe at least $1,000 in tax for the year.

Essential Record Keeping

Maintaining accurate financial records is important whenever funds are moved from a business account to a personal one. This practice helps ensure tax compliance, prepares the business for potential audits, and provides a clear picture of its financial health. Clear documentation of all transactions, including payments to owners, is important for separating personal and business finances.

Records that should be kept include check stubs, electronic transaction records, and detailed ledger entries. Each transaction should be clearly categorized as an owner’s draw, salary payment, or reimbursement, to reflect its true nature. Utilizing accounting software or spreadsheets can streamline the tracking of these transactions, providing an organized and accessible history. This record keeping helps avoid confusion and supports the accurate preparation of financial statements and tax returns.

Exploring Other Payment Methods

Other methods offer convenience and enhanced record-keeping for owners to pay themselves from a business account.

ACH transfers or direct deposit provide a convenient electronic method for moving funds between accounts. This approach offers electronic records and can be set up for recurring payments, similar to employee wages. Many business banking platforms facilitate these transfers.

For businesses with W-2 employees, including owner-employees, payroll services can manage salary payments. These services handle tax withholdings, payroll tax filings, and direct deposits, ensuring compliance with federal and state employment tax regulations. This outsourcing reduces administrative burden.

Using a dedicated business credit card for business expenses helps maintain financial separation. Instead of an owner paying personally and seeking reimbursement, the business credit card directly charges the company. This minimizes reimbursements and segregates business expenditures.