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Withdrawals from a Schedule C business, even if an LLC being taxed as a disregarded entity, do not create income to the sole proprietor. Conversely, the choice to not withdraw profits does not relieve taxation. The sole proprietor is taxed, or allowed losses (if certain conditions are met), based on the difference between reported income and deductions as shown on the Schedule C. Note that withdrawals are not a deduction.

As a sidebar. If an LLC, care should always be taken to keep good records, and observe a separation between business and personal. Failure to keep that separation may result in a loss of the limited liability protection that is likely a strong motivation for forming the LLC in the first place.

Bob Smith
Tax Preparer Learning Systems, LLC
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