How to spend money you EARN in an LLC

Question

I am gearing up to set up an entity in the form of an LLC. My question is, when you earn money that is made payable to your LLC, how do you spend it?

You can't commingle funds, so how do you spend the money you earn?

Graham Mink · Answer

I would do what you suggest in your last post. But after the money is in your account I would only take lump sum withdrawals on an annual, quarterly or monthly basis. For example:

1)You get rent checks made out to your LLC and deposited into your LLC's checking account.

2) All expenses related to the property are paid directly from this same account. (For tracking purposes)

3) Every quarter you write a check from the LLC account to yourself personally and deposit it in your personal checking account.

4) You spend the money in your personal account as you wish.

This way you track all your LLC income and expenses easily. This way you also track all the money you take out personally so you know how much money you have made, lost, etc. There will only be 4 checks per year withdrawn.

If you use the LLC account for personal purchases at tax time it is going to be a lot harder to sort everything out. Of course none of this is mandatory, it is just my opinion. I would recommend speaking with your tax preparer about this.

Steven Hamilton II · Answer

@Bill Mitchell ,

I STRONGLY advise against doing that. Granted you CAN just categorize it as a personal draw. I Don't recommend it.  Several attorneys have advised against it.  As it would be commingling of funds.  You can simply do a transfer from the LLC to your personal account labeling it "owner draw" or "Shareholder Distribution".

You only run into an issue if you draw more than your stock basis. If that happens the amount over your stock basis is taxable.

Bill Mitchell · Answer

Graham Mink  Thanks for responding. Tens of thousands of dollars. So as long as I can document everything, I can still use my LLC checking to buy reglular things? For instance buy groceries, or new shoes? Just again, noting it is a personal expense and not business related?

Ned Carey · Answer

@Bill Mitchell it depends on how the LLC is taxed.

If it is a single member LLC or a multi-member taxed as a partnership 9the default) you simply take money as a distribution.  You can add or remove money from your LLC as a distribution or capital contribution with no tax consequence. You simply write a check from your company to yourself.

If you elect to have it taxed as a corporation is has to come to you as employee income or dividends.

No that would be co-mingling of funds. Write yourself a check as a distribution, wages, dividends etc as appropriate and deposit it in your personal account. Then spend the money in your personal account.

Your accountant can explain further.  - Ned

Tia M. · Answer

@Bill Mitchell Excellent question.  I've been wondering the same thing myself. I wouldn't want to go about paying myself the wrong way.

Lisa Phillips · Answer

I dont know if I understand the question, but for my LLC, I have my property managers make checks payable to my LLC and deposit them to my business checking account for that LLC. That way, I have in your monthly statements a paper trails of any deposits. This is automatic deposited or they will send a check. The checks are not in my name, but made to my LLC.  I do this to have a completely clear differentiation between business/personal funds, and I do not mess around between the two. Now, once that is deposited into your business bank account, spend at will with your checks/debit cards.

Graham Mink · Answer

I am not a tax professional so I recommend you speak with one before doing anything. Terry is correct that all the LLC profits flow through to your personal income tax return anyway. To keep it simple and easily trackable I would suggest limiting withdrawals for personal reasons annually, quarterly or monthly. It would get quite confusing and difficult to locate your deductions if you are using the account for lots of miscellaneous personal purchases. Just my 2 cents.

Johnson H. · Answer

You would write yourself a check and that would be the owners disbursment. It is better to keep the business account only for business. It makes reconciliations at tax time very easy when you have your personal and business expenses in separate accounts.

Terry Hershberger · Answer

Bill,

You can just write yourself a check. All profits will pass on to you personal income tax return anyway.

Graham Mink · Answer

Hi Bill,

I would open a Business Checking account in your name and the LLC's name so you can cash the check and then document everything you spend from that account. How much money are you talking about?

Graham

How to spend money you EARN in an LLC

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