Money Pro by Business Entity Type — LLC, S Corp, C Corp

Owner's Draws

An owner's draw is money you take from your LLC for personal use. It is not a business expense and not deductible. You are already taxed on your LLC's net profit. The draw simply moves cash from your business account to your personal account — it has no effect on your tax liability.

How to record in Money Pro:
1. Go to Banking or Transactions
2. Find the withdrawal to your personal account
3. Set the Category to "Owner's Draw" or "Personal"
4. The transaction appears in the Balance Sheet equity section — not in expenses

The #1 bookkeeping mistake for LLC owners: Categorizing draws as Salary, Compensation, or any expense category. This inflates your deductions, understates your taxable income, and can trigger IRS audits. Single-member LLCs cannot pay W-2 wages to the owner unless the LLC has elected S corp status.

Capital Contributions

When you put personal money into your business, it is a capital contribution — not taxable income. You have already paid tax on this money.

How to record:
1. Find the deposit from your personal account into your business account
2. Set the Category to "Owner's Contribution" or "Capital Contribution" (in the equity section of categories)
3. This appears in the Balance Sheet as increased assets and equity — not as income

If you see "Owner's Contribution" is missing from your category list, go to Settings → Chart of Accounts and look in the Equity section. Contact support if it's not there.

Keep Personal and Business Accounts Separate

Mixing personal and business funds ("commingling") can cause courts to "pierce the corporate veil" — treating your LLC as if it doesn't exist as a separate entity. This means creditors in a lawsuit could pursue your personal assets. Separate bank accounts are legally essential for LLC liability protection.

In Money Pro: connect only business bank accounts. If you accidentally pay a personal expense from your business account, categorize it as Owner's Draw, not as a deductible expense.

Capital Accounts

Each member has a separate capital account tracking their contributions, share of profit/loss, and distributions. Since 2020, the IRS requires partnerships to report capital accounts using the tax basis method on Schedule K-1.

How to track in Money Pro:
- Create separate equity categories for each member: "Member A Capital," "Member B Capital," etc.
- Record contributions to the specific member's capital category
- Record distributions to the specific member's capital category
- Use these categories consistently so K-1 preparation is clean

Money Pro records the cash transactions but does not automatically calculate partner tax basis or generate K-1s. Work with a CPA to reconcile capital accounts at year-end.

Distributions

Distributions in a multi-member LLC must follow your operating agreement — the documented allocation method (equal split, ownership percentage, capital account balance, or custom formula). Do not assume distributions are tax-free: member basis and the allocation rules still apply. If a member takes distributions exceeding their basis, it can trigger capital gains tax.

Partner Basis

Partner basis is the tax measure of a member's investment. It increases with contributions and profit allocations, decreases with losses and distributions. Distributions exceeding basis trigger taxable gain. Money Pro records the cash transactions; formal basis calculation is handled outside the app with your CPA.

Reasonable Compensation Requirement

The IRS requires S corp owner-employees to pay themselves a reasonable salary (W-2 wages) before taking distributions. The IRS scrutinizes this heavily: 73% of S corp audits focus on inadequate shareholder compensation.

"Reasonable compensation" means pay comparable to what you'd pay someone else to do your job — based on duties, hours, experience, and market rates. The IRS's goal is to prevent shareholders from avoiding payroll taxes by routing all compensation as distributions (which are not subject to payroll taxes).

Contact a CPA or payroll provider to set a defensible salary before taking S corp distributions.

W-2 Salary vs. Distributions

How to record W-2 salary in Money Pro:
- Category: "Payroll Expense" or "Officer Compensation" (appears on P&L as deductible)
- Also record employer payroll taxes as "Payroll Tax Expense"

How to record distributions:
- Category: equity distribution category (appears on Balance Sheet, not on P&L)
- Never categorize distributions as expenses

Shareholder Basis

Shareholder basis starts with your capital contribution, increases with income allocations, decreases with losses and distributions. Distributions above basis can become taxable. Formal basis tracking is typically done outside Money Pro with your CPA using K-1 records.

Accumulated Adjustments Account (AAA)

The AAA tracks previously taxed S corp income that hasn't been distributed. Distributions from AAA are generally tax-free to the extent of basis. Money Pro does not calculate AAA — your CPA handles this on the S corp return (Form 1120-S).

How Double Taxation Works

Example on $100,000 profit:
1. C corp pays 21% corporate tax ($21,000) → after-tax profit: $79,000
2. $79,000 distributed as dividends → shareholders pay 15–20% tax ($12,000–$16,000)
3. Net to shareholders: $63,000–$67,000 — total tax: 37–42%

Strategies to Reduce Double Taxation

• Pay shareholder salaries: W-2 wages are deductible business expenses, reducing the corporation's taxable income. Shareholders pay ordinary income tax on wages, but this eliminates the dividend-level tax on that portion.
• Retain earnings: Keep profits in the corporation and pay only 21% corporate tax. No immediate shareholder tax until profits are distributed as dividends.

Dividends vs. Retained Earnings in Money Pro

How to record dividends:
1. Go to Banking/Transactions when dividend is paid
2. Category: "Dividends Paid" (equity category — not an expense)
3. This reduces retained earnings on the Balance Sheet

Retained earnings build automatically in Money Pro as prior-year net profit rolls into equity at year-end.

Why can't I record my owner's draw as an expense?

Owner's draws are not business expenses — they are equity reductions. You are moving money you've already earned (and will be taxed on) from your business to yourself. Categorizing draws as expenses inflates your deductions, reduces taxable income incorrectly, and can trigger IRS audits. Use the "Owner's Draw" or "Personal" category, which places the transaction in the equity section of your Balance Sheet.

I accidentally categorized past draws as expenses. How do I fix it?

Find each transaction in Money Pro and reclassify it from the expense category to "Owner's Draw" or "Personal." Run a new P&L report after reclassifying to confirm your expenses decreased by the total amount reclassified. File an amended return (Form 1040-X) if the error affected a previously filed tax return — consult your CPA before doing this.

What's the difference between an owner's draw and a salary?

Single-member LLCs cannot pay W-2 wages to the owner (you can't employ yourself at a disregarded entity). You take draws, which have no payroll tax implications — you simply pay self-employment tax on total net profit. S corp owner-employees take W-2 wages AND distributions. The W-2 wages are deductible; distributions are not.

I'm an S corp owner. How much should I pay myself as salary?

There's no fixed rule. "Reasonable compensation" is what you'd pay an employee doing the same work. The IRS compares your salary to market rates for your role. Setting it too low is the most common S corp audit trigger. Work with a CPA to establish a defensible salary before taking distributions.

Does Money Pro work for multi-member LLCs?

Money Pro handles the transaction-level bookkeeping for multi-member LLCs. It does not automatically calculate partner capital accounts, allocate profit/loss by ownership percentage, or generate K-1s. You can create equity categories per member and track transactions manually, then work with a CPA at year-end for K-1 preparation and basis calculations.

How does Money Pro handle C corp dividends?

Record dividends paid as an equity-category transaction (not an expense). Money Pro will not calculate corporate or shareholder tax on dividends — that's handled in your corporate tax return (Form 1120) and your CPA's K-1 or 1099-DIV preparation.