Owner Draw
Definition
An Owner Draw (or just "draw") is the primary method by which owners of a default LLC (disregarded entity or partnership) pay themselves. It simply involves transferring money from the business bank account to the owner's personal bank account.
Why it matters
Many new business owners make the mistake of trying to put themselves on W-2 payroll when they have a single-member LLC. The IRS explicitly forbids a sole proprietor or single-member LLC owner from being a W-2 employee of their own company. Instead, you simply take an owner draw. Importantly, an owner draw is not a tax-deductible business expense. You are taxed on the total profit the business makes, regardless of whether you leave the money in the business account or draw it out.
Example
Amanda runs a single-member LLC. At the end of the month, she has $5,000 in her business checking account. She needs to pay her personal rent, so she transfers $3,000 from the business account to her personal checking account. This $3,000 transfer is an owner draw. It does not reduce her LLC's taxable profit for the year.