Investor · Mclean, VA - Virginia · Member since 2013 · 43 posts · 8 votes
Hi everyone! I've been a long time lurker and first time poster. This question has been on my mind lately and I hope someone can help clear things up.
Let's say I have a LLC established and I want to transfer funds from my personal bank account to the LLC's bank account to buy properties. Funds from my personal bank account will be earned income from my job. Will I have to pay a gift tax if the amount exceed the allowable gift amount? Since a LLC is treated as a separate entity, how is transferring money in and out of a LLC viewed by the IRS?
As long as it's a single member LLC, considered a disregarded entity by the IRS, you just write a check to the LLC and deposit it in the LLC business account. Use an OWNER'S CONTRIBUTION account to record the deposit. You've just added funds to business. Now use the business checkbook to make purchases as long as they are business related.
Want to use business funds for personal stuff? Don't pay for it with the business checkbook. Instead, write a business check to yourself and record it in the OWNER'S DRAW account as pay or a distribution. Then deposit it in your personal account, now you can spend it on personal things.
As a disregarded entity, all of your LLC business flows right onto your personal taxes.
Absolutely seek guidance from an attorney and CPA before making any decisions, I am neither.
As long as it's a single member LLC, considered a disregarded entity by the IRS, you just write a check to the LLC and deposit it in the LLC business account. Use an OWNER'S CONTRIBUTION account to record the deposit. You've just added funds to business. Now use the business checkbook to make purchases as long as they are business related.
Want to use business funds for personal stuff? Don't pay for it with the business checkbook. Instead, write a business check to yourself and record it in the OWNER'S DRAW account as pay or a distribution. Then deposit it in your personal account, now you can spend it on personal things.
As a disregarded entity, all of your LLC business flows right onto your personal taxes.
Absolutely seek guidance from an attorney and CPA before making any decisions, I am neither.
Many thanks! The explanation did make things clearer. I will absolutely seek guidance before making any decisions!
Another question if you don't mind. If I have a holding company LLC with multiple subsidiaries LLC, can the same concept still apply? For example, can I use an owners contribution account to record the deposit for the holding company. And then use the holding company account to make deposits for the subsidiaries? Will the IRS consider the holding company a disregarded entity if I'm the single member? The holding company would be the single member for the subsidiaries. Thanks again.
Not sure about your structure or how it would work. The two accounts I mentioned are not bank accounts, they're equity accounts in your company books. Maybe someone else will chime in.
There are no tax implications of any kind with you contributing capital to an LLC regardless of how many members there may be or what tax election your LLC has elected.
There is no tax issue with passing funds to or from any parent company to subsidiary or affiliate companies.
Using the words "owner's drawing" is not something to use on your books or on any draft (check) when you are pulling out your money from contributions as "drawing accounts" is you pay, taking out taxable income. Contribution withdrawal should be used.
It also sounds like you may have some money management issues floating money in and out of other business accounts or through them. You can make deposits directly to the company requiring the capital. Passing funds around like that creates a lot of accounting work, so do some planing.
Bryan made a good point as to comingling funds, never use you money from your account to buy company assets or pay any company expense and never use company checks to pay for any personal matters. Put the money in either the business or your personal account and buy or pay for things accordingly.
You really need to speak to an accountant before starting any company. :)
Thanks, this is really great information Bill and Bryan! I only plan to contribute capital to the LCC and not withdraw any from it. I'm sure my accountant will have a headache dealing with my taxes if I structure the parent LCC in this manner, but that's what I pay him for anyways haha. =D
I'll definitely do more research and seek legal advice before starting a company. At least now I have a better understanding of the legal and tax implications. So thank again everyone!
I have a similar situation that hopefully one of you gentlemen can assist me with. I currently have an LLC, and several times over the past year have transferred money from my personal account to the business account, in order to assist with company start-up expenses. I am now attempting to transition my transaction history into Quick Books, but am unsure which Tax-Line Mapping selection to mark for these money transfers.
Hi everyone! I've been a long time lurker and first time poster. This question has been on my mind lately and I hope someone can help clear things up.
Let's say I have a LLC established and I want to transfer funds from my personal bank account to the LLC's bank account to buy properties. Funds from my personal bank account will be earned income from my job. Will I have to pay a gift tax if the amount exceed the allowable gift amount? Since a LLC is treated as a separate entity, how is transferring money in and out of a LLC viewed by the IRS?
Thanks! =)
You essentially are describing the supply of capital to the LLC. It is not a gift per se but an investment in the LLC. The LLC essentially owes you the invested funds. On the balance sheet, this would be reflected in the owners equity balance.
You probably want to have a way of depositing funds into the LLC without having to utilize a personal bank account to perform a direct transfer.