Newbie just opened LLC and business banking

3 Replies

Hi All,

got a tax question I been pondering... might be a dump dump question. so I opened a business checking and money market account. I put good chunk of my savings into it as start up capital. My question is if I decided to withdraw from it, will I be tax on any of it that i put in?? I know you pay tax on the profits you make but does money that you deposit into your business accounts consider profit?

I am not a lawyer or accountant, etc.

Single member LLC? You could characterize the initial capital as a loan and take it back when you need it. Otherwise it would just be distribution to the LLC members.

I would imagine you don't want to get into the habit of freely taking money in and out of the LLC. It would probably make it easier to have your corporate veil pierced if you were ever sued.

Money that you put into an LLC is considered a contribution(or possibly a loan if there a loan agreement for the LLC to pay you back).

Money that you take out of an LLC is considered a distribution.
Distributions are not taxable income unless they exceed your basis.

If your money market account is paying you interest; you will be responsible for reporting the interest income.

Contributions to an LLC can be treated one of two ways. Either as capital or debt (you loaning funds to the LLC). Capital is more common, but depending on your specific facts and circumstances, sometimes debt is better. Anyways, assuming you have basis, then the distribution is treated as a return of capital and not taxable. If you have no basis, then you will be taxed.

It is important to consult with a CPA who can advise you accordingly and a good CPA will assist you in tracking basis.

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