How to make a distribution from LLC correctly?

Question

Hi everyone,

I live in Phoenix, Arizona and have a rental that is owned by arizona LLC. I have a good problem - quite a bit of cash is sitting in LLC's business account and I would like to get some of that cash out. I haven't done it ever and don't want to take the money out in a wrong way... wanna follow the right procedure legally et cetera...  Do I have to pay myself in order to make a distribution? Should I document it in somehow? Can I just get a chunk of cash out?

Thank you

Jeff B. · Answer

Sole proprietorships, partnerships, LLCs and S corporations are pass-through entities for federal income tax purposes. This means these entities  are not subject to income tax. Rather, the owners are directly taxed  individually on the income, taking into account their share of the  profits and losses.

Every LLC should have an Operating Agreement (you can read more about that here.)  While most states do not require an operating agreement, it is  advisable to create one. Operating agreements are essentially contracts  between the members of LLCs outlining the structure of the business,  including - for our purposes - the business’s tax structure. Be sure to  check if your state requires that you file your operating agreement.

Past that, you’ll need to file Form 1065  with the IRS. The IRS uses this to ensure each LLC member is properly  reporting their income from the LLC. You should also give each member a  Schedule K-1 so everyone has, in writing, their share of the profits and  losses.

After this, every member of the LLC will be taxed personally on their 1040 tax return.

Sean Cole · Answer

If it's a single member LLC, there's nothing special for you to do to take the money out.  You'll pay taxes on the income for the LLC.  You don't pay taxes on it again when you take a distribution.

Bob E. · Answer

If you received a K1 you have probably already paid the taxes.

How to make a distribution from LLC correctly?

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