Strategy for transferring personal money to LLC

4 Replies

To get started in real estate investing, I am creating an LLC. In order to start, I will need to give my "LLC" self some money from my "personal" self for down payments, rehab costs, etc. I would like to eventually pay my "personal" self back. How can I do that without paying payroll taxes?

You only pay taxes on income.

Withdrawals of capital and/or reimbursements of value contributed aren't income/PNL activities. They are balance sheet activities.

You could contribute a million dollars on Monday, remove half a million in Tuesday, put a million more in on Wednesday, and remove the $1.5 million balance on Thursday. You wouldn't owe any taxes, because you didn't generate any income.

Check with a CPA to confirm this concept.

Thanks for the response Dan.

I have an LLC for another business, and that LLC is able to transfer money to me personally in two ways: Payroll and Distribution. If it's considered payroll, then I have to pay FICA or payroll taxes. If it's a distribution, then I have to personally pay taxes on that as personal income. Now this LLC has an S-Corp designation, so it might be different, but that is what my accountant told me (of course, I could have misunderstood).

That is why I am asking this question.

@Shane Humes - In your new LLC. You will need to create an entry using Receipt.

This is when you put money into the LLC:

Debit Cash

Credit Shane's Capital

When you are paying yourself back:

Debit Shane's Withdrawal (this makes it easier for CPA to see what went in and out). 

Credit Cash

When you make a Distribution to yourself, that will normally require the K-1 at year-end. If you reduce your capital, you are just getting your money back. Check with your CPA. My role is usually working with the CPA.

If your LLC is in the business of buy and hold where the property will generate rental income/expenses - The income will be portfolio in nature and not subject to self-employment tax.

However,if the LLC is in the business of fix and flip then you are generating ordinary income. you will be subject to self-employment tax on the income the LLC earns during the year. The amount of your payroll tax liability is not dependent on distributions/cash received.

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