Will My Business’ Equity Affect My Personal Taxes?

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Understanding Business’ Equity Vs. Personal Taxes

If you are a business owner, it can be difficult at times to separate your personal and business financial matters. What is business equity anyway? In the world of business and finance, equity refers to the value of ownership in something. Equity can be used to measure the value of an entire business. A single stock issued by a business, the inventory owned by the business, or any other thing that has value. On a company’s balance sheet, total equity is represented by the sum of common stock, preferred stock, paid-in capital, and retained earnings. This is known as shareholders’ equity, or stockholders’ equity. This is because it represents the total equity shared by all of a company’s owners.

Is your business is a sole proprietorship or a single member limited liability company? Is it common for you to take a draw out on the earnings of the business to pay yourself? Some business owners choose to take money out of their business through a draw rather than paying themselves a regular salary. 

Keep in mind that your business would have already paid taxes on the amount of the draw. Therefore, you would not be responsible for paying additional taxes upon depositing the check. If the government required you to do so, it would essentially mean that business owners would be paying taxes twice on the same sum of money. Businesses pay taxes based on their net income, and a draw is simply treated as a distribution of income. It is not necessarily viewed as a business expense. There are no limits on the number of draws you can take from your business. 

Business’ Equity Help from Attorney with Small Business Experience

It is important to consult with an attorney who regularly represents small businesses in setting up their operating practices so that you are not at risk of violating any tax or corporate laws. A business attorney can advise you on the best corporate structure for your situation and what you need to do to avoid raising red flags with your financial procedures. 


Contact Experienced Business Attorneys Anthony J. Madonia & Associates

You should retain the services of seasoned Chicago Illinois business attorneys to help you navigate complex legal situations with your business. Contact the firm of Anthony J. Madonia & Associates right away at (312) 578-9300 to speak with knowledgeable Chicago Illinois business attorneys about legal issues concerning your Illinois business.