As part of sales commission, a recoverable draw is paid to the sales person. Is the draw amount taxable?
It depends! The draw amount is taxable if it is provided through payroll. Example, if the saleperson is on a draw of $5,000. If in month 1, they earn $3,000 in commissions and you provide a draw of $2,000 to make the total amount equal to $5,000, then you will be calculating taxes on $5,000 worth of income. If in month 2, they earn $7,000 in commissions, then you would recover $2,000 for the draw you already provided leaving them $5,000 in income which is taxable. Generally the tax effect should wash out as you recover the draw. If the draw is not provides as part of payroll and given as a separate check and treated distinctly as a loan, then it is not taxable. You may have to charge interest depending on the amount and term of the loan. There are imputed interest rules if the loan is over a certain amount and term. If the loan is forgiven, it will become income to the employee and will then become taxable. Different rules apply for owners of the firm. Your accountant may need to clari
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