Taxes Made Simple

John (self-employed plumber) asks:

Hi Mike. Last year I started my own plumbing business as a sole proprietorship. Now that it's profitable, I took $4,000 out of my business checking account and deposited it into my personal account. Is this taxable as income?

Answer:

Hi John. If you run a sole proprietorship (or an LLC taxed as a sole proprietorship), the IRS views the business simply as an extension of yourself.  As such, anytime you either put money into the business or take money out, there are no tax consequences.  To the IRS, this is basically the same as just moving money from one of your checking accounts to another.  So, in brief: No, moving money from your business account to your personal account does not count as taxable income.

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