A sole proprietor doesn't issue themselves a W-2. They take what's commonly referred to as "Owner's draws". Reporting profit and loss is accomplished by using a schedule C that records income and expenses. You will be taxed on the profit, whether or not you take any of it out as owner's draws. You may also take an owner's draw out of the company at any time, so it may be money you already paid tax on, if you had chosen to leave profits in the company from a prior year. In addition to paying income tax on any profit in the year it's earned, you are subject to self-employment tax reported on schedule SE. This in a way substitutes for the W-2 withholding an employer would do for social security and Medicare.
We have some great resources available on our Self-Employment Hub.
Hope this helps!
Cindy
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