How are non-LLC business expenses handled?

10 Replies

I have 2 properties under contract, one in my name and one in the name of my LLC that I just opened. I have a bank account and credit card I've been using so far for the one in my name, and once I get my EIN I will open a business account.

The only reason the new property is in the LLC is because it's a commercial property and I have a partner. I will not be transferring my other property into my LLC anytime soon, so they will remain split.

When it comes time to file taxes, I will have business expenses associated with my LLC and business expenses directly associated with me. Are these treated the same? Can I use the same credit card for both LLC and non-LLC business expenses?

It sounds like the LLC is a partnership for federal income tax purposes. Do you have an operating agreement and business checking account? A partnership issues Schedule K-1 to each partner annually and you'll include your distributive share of income, deduction, and credit from the K-1 on your 1040.

The other property will be filed directly on your 1040.  You'll want to keep business expenses separate from personal expenses.

Originally posted by @Eamonn McElroy:

It sounds like the LLC is a partnership for federal income tax purposes. Do you have an operating agreement and business checking account? A partnership issues Schedule K-1 to each partner annually and you'll include your distributive share of income, deduction, and credit from the K-1 on your 1040.

The other property will be filed directly on your 1040.  You'll want to keep business expenses separate from personal expenses.

I have the operating agreement but don’t yet have the checking account (just filed, waiting for my EIN). 

So by the last 3 statements, it sounds like I need to keep separate my business expenses (LLC), business expenses (non-LLC), and personal expenses. Is that accurate?

If I own the LLC but have a separate agreement addendum with a partner for a particular property, do we each claim a share of the property expenses and I claim the entirety of business expenses outside of the property? For example, he has 45% interest in property 2. If we pay $10k in repairs, does he claim $4500 expense deduction?

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@Patrick Menefee

You have a partner on your commercial property. Expenses related to that property are half yours and half his. How do you expect to mix them with your own expenses? This is not about taxes, this is about common sense.

@Michael Plaks if it were perfectly clear to me I wouldn’t have asked someone else for advice.

Splitting partnered expenses makes perfect sense, but I'm not asking whether to throw that in the same expense bucket with the case of beer I bought last weekend. I also have LLC business expenses that are not a part of the partnership, as well as business expenses that are not a part of the LLC.

I would assume that for any expenses within the LLC, those that aren't part of the partnership (LLC filing, office/home expenses, etc.) would be combined with my share of the partnered expenses. These would all be kept separate from my non-LLC business expenses (investment property in my name only, not under LLC). Is that common sense accurate?

Last part, do these need to all come from 100% separate accounts? If I'm going to put business expenses on a credit card, do I need one CC for my LLC and one CC for my non-LLC business expenses?

@Patrick Menefee

I'm simply suggesting how to frame all of these questions for yourself.

You and two of your buddies go for a lunch, planning to split the bill. You also want to buy couple to-go boxes and desserts for yourself and your girl to eat at home tonight. Are you going to put all 5 meals on the same bill? Or are you going to put 3 lunches on one check (to be split 3-way) and pay for the two dinners separately? I hope this makes sense to you and you choose the latter, not the former.

You and your partner have a business which is completely separate from your personal business. It needs absolutely everything separate: separate bank account, separate credit card, separate bookkeeping, separate tax ID, separate tax return.

@Patrick Menefee

"So by the last 3 statements, it sounds like I need to keep separate my business expenses (LLC), business expenses (non-LLC), and personal expenses. Is that accurate?"

Yes.

"If I own the LLC but have a separate agreement addendum with a partner for a particular property, do we each claim a share of the property expenses and I claim the entirety of business expenses outside of the property? For example, he has 45% interest in property 2. If we pay $10k in repairs, does he claim $4500 expense deduction?"

I'm rather confused on whether or not the LLC has more than one member or if it's single member and you're co-owning properties through the LLC. If the latter the properties might be TIC **or** might be general partnerships if their activity rises above that of TIC and an operating/partnership agreement exists.  Your tax pro will be able to help you sort out all of the intricate details.

I/We (4 different but overlapping partners) have properties in 7 different entities and I also have my full time day job LLC that is a family business.

Why 7?! 3 of the 4 of us hold them on our own, and 4 LLCs for SOLO401Ks, SDIRAs, "cash held LLC" all of which are 3 way LLCs, and a forth cash held LLC with a Private Money Partner. 

Each of those LLCs has there own checking account, credit card and record keeping. My two partners run their self owned properties out of their personal checking (but use quickbooks for accounting personal and business) and I run mine as a completely separate account.

I cant imagine if we ran those in 'mixed accounts'. To each there own, but I prefer clarity. It is SO simple at tax time :-)
Dan Dietz

@Patrick Menefee you really want to separate for two reasons:

1. LLC has a partner, so best to keep the finances separate

2. To limit liability you want business and personal separated

I have multiple properties in my own name and use one account for all the properties, but the difference is no partner and no LLC. I still have to separate expenses for tracking purposes. So the receipts and expense tracking is separate for each property, even though it is paid from the same account.

If you happen to put a business expense on a personal card by accident, it is not a big deal. You will just want to have the LLC reimburse you. Keep really good records with expense descriptions and keep and keep all the receipts.