Can You Transfer Money from a Business Account to a Personal Account?

Managing cash flow is a critical concern for US small business owners. This is especially true when considering transactions between business and personal accounts.

This article will guide you through the legal and tax considerations of transferring money from a US business account to a personal account. The laws for other countires may differ, always consult a tax advisor regarding the local rules and requirements.

Key takeaways:

• You can transfer money from a business account to a personal one, but how you do it legally depends on your business structure.
• To stay compliant, you must always properly record transfers.
• Transferring money without following the proper procedures can lead to consequences, such as tax penalties.

If you have a Wise account, then you can also read our step-by-step guide to transfer from Wise Business to Personal.

Can I Transfer Money from Business Account to Personal Account in the US?

Yes, you can transfer money from a business account to a personal account, but how you do it legally depends on your business structure. Understanding the correct process is crucial to avoid tax issues and penalties. This can also help to stay clear of compliance problems.

For sole proprietors, the process is relatively straightforward. The business and the individual are considered the same legal entity.²
For partnerships, LLCs, and corporations, transferring funds the wrong way can cause tax problems. It may even lead to an audit. So it's important to do it properly.³

People often transfer money from a business account to a personal one for a few reasons. These include paying themselves a salary, taking a draw or distribution, covering personal payments for business expenses, or withdrawing profit shares. Regardless of the reason, it’s essential to document every transaction carefully. This is to maintain accurate financial records and stay compliant with IRS regulations.

Legal and Tax Considerations

When transferring money from a business account to a personal account, it is crucial to handle the transaction correctly. This will help to avoid potential legal and tax complications.

One of the most significant risks is co-mingling funds, which involves mixing business and personal finances. The IRS and courts may view this as disregarding the separation between you and your business. This could potentially jeopardize your limited liability protections (for LLCs and corporations).⁴

Co-mingling can also complicate your tax filings and make audits much more challenging.

To stay compliant, always properly record transfers. This means:

• Sole Proprietors: You can make an owner’s draw, but it’s essential to record it in your accounting records as a personal withdrawal, not a business expense.

• For LLCs, Members typically take distributions, which must be documented. If you have a multi-member LLC, you will also need to track distributions in accordance with the ownership percentages.

• For Corporations, transfers typically occur through salaries, dividends, or loans. Salaries must run through payroll and have taxes withheld. Dividends require board approval and must be derived from profits. Loans require formal agreements and proper repayment terms.

Best Practices for Transferring Funds from a Business to Personal Account

To keep your business compliant and your finances organized, it's important to follow best practices. This is especially true when moving money between business and personal accounts. The correct method often depends on your business structure:

• Owner’s Draws for Sole Proprietors and LLCs: If you run a business as a sole proprietor or a single-member LLC, you usually pay yourself with an owner’s draw.⁸ This means moving money from your business account to your personal account. You don’t need to run it through payroll. However, it’s important to track these draws correctly. In your accounting software, record them as withdrawals, not business expenses, since they aren’t tax-deductible.

• Payroll or Distributions for Corporations: For S Corporations and C Corporations, paying yourself requires more formal steps. You must either:

• Run Payroll: Pay yourself a reasonable salary through payroll. Include proper tax withholdings (Social Security, Medicare, federal, and state taxes).

• Issue Distributions: After paying salaries and business expenses, any remaining profits can be distributed as dividends to shareholders. Distributions must be documented formally and may be subject to dividend taxes.

Consequences of Improper Transfers

Transferring money from your business account to your personal account without following the proper procedures can have serious consequences.

One of the most immediate risks is tax penalties. If the IRS views personal withdrawals as unreported income or misclassified expenses, you could face fines. You may also be hit with back taxes, and interest charges. Improper classification can also trigger an audit. This may result in additional scrutiny of your business finances.

Beyond tax issues, improper transfers create major accounting complications. Co-mingling funds can blur the line between business and personal finances. This can make it challenging to maintain accurate records and file taxes correctly. It can also make it harder to provide clear documentation during a financial review.

For LLCs and corporations, this could even jeopardize your limited liability protection. It could expose your assets to potential legal claims against the business.

Is it Illegal to Transfer Money from Business to Personal?

In most cases, transferring money from a business account to a personal account is not illegal. However, it has to be done properly and in line with your business structure and tax obligations.

Business owners are permitted to pay themselves through draws, salaries, dividends, or reimbursements. This depends on the type of business entity they operate, such as a sole proprietorship, an LLC, or a corporation.

However, problems arise when these transfers are improperly recorded or misclassified. You can get in trouble if records are used to
disguise personal expenses as business deductions. This can lead to legal issues, tax penalties, and audits by the Internal Revenue Service (IRS). For corporations and LLCs, failing to maintain a clear separation between business and personal finances could also result in “piercing the corporate veil''. This could expose the owners to personal liability for business debts.⁷

The key is always to document transfers accurately and follow formal procedures for salaries or distributions. Your company should ensure personal withdrawals are not disguised as deductible business expenses.

How Do You Pay Yourself From a Business Account?

How you pay yourself from a business account depends mainly on your business structure. However, the goal is always the same: ensure it’s legal, properly recorded, and tax-compliant.

Here’s how it typically works:

• Sole Proprietors and Single-Member LLCs: You can pay yourself through an owner’s draw. Simply transfer money from your business account to your account and record it as a draw, not a business expense. No taxes are withheld upfront, but you must report and pay self-employment taxes when filing your return.

• Multi-Member LLCs: Members take distributions based on ownership percentages. The LLC itself typically does not withhold taxes, so each member reports their share of the profits on their tax return.

• S Corporations: You must pay yourself a reasonable salary through payroll. You should include proper tax withholdings (Social Security, Medicare, federal, and state taxes). Additional profits can be distributed as dividends, which may be subject to lower tax rates.

• C Corporations: Similar to S Corps, you pay yourself a salary through payroll. C Corp owners may also receive dividends. Unlike S Corps, the corporation pays taxes on its profits first, and shareholders are taxed again when they receive the dividends. This process is known as double taxation.

Simplify Business and Personal Transfers with Wise

Managing transfers between business and personal accounts can get complicated, especially when dealing with multiple currencies. That’s where Wise helps. It makes the process clear and easy to manage. You can open a personal and business account, and connect with accounting software to make keeping track of finances easier.

Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. You can open your account 100% online, with no need to book appointments or wait in line. There are no monthly account fees and international payments are made at the mid-market rate. This means you can move money efficiently without hidden costs.

You can also hold and manage over 40+ currencies in one account. Plus, you get local account details in major currencies, making it easier to receive payments.

Register with Wise Business 🚀

The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds in 40+ currencies. You can get major currency account details for a one-off fee to receive overseas payments like a local. You can also send money to 140+ countries.

	Editor & Business Expert:
	Panna is an expert in US business finance, covering topics from invoicing to international expansion. She creates guides and reviews to help businesses save time and make informed decisions. You can read more useful business articles on her author profile.

Sources:

1. https://quickbooks.intuit.com/uk/blog/late-payments-impact-on-businesses/
2. Sole proprietorships | Internal Revenue Service
3. LLC vs Inc: Key Differences Explained | Wolters Kluwer
4. Limited liability company - Possible repercussions | Internal Revenue Service
5. How are profits split in an LLC? | Wolters Kluwer
6. Owner's draw vs. salary: how to pay yourself as a business owner
7. Piercing the Corporate Veil: Understanding the Limits of LLC Protection
   All sources checked July 2025