Equity in a business is your assets minus your liabilities. Equity takes a different form depending on the formation of your business entity, ie. corporation vs an LLC.
If your business is setup as a sole proprietorship, owner’s equity represents the owner’s investments in the business plus any additional contributions minus any withdrawals, or owner’s draws. At year end the business net income will be added to the owner’s equity, or subtracted if you have a net loss.
For more information regarding business structure types and their effects on tax it is smart to consult with an accountant, tax professional, or CPA to further discuss the matter. If you would like to find a professional, please refer to our partner program to find a Crunched Partner nearest you.