For LLC must payments be made from LLC bank account?

Question

Hi! If I set up a LLC to hold my real estate, must all my business expenses be paid via the LLC bank account for annual accounting purposes? For example, my air ticket expenses, food during my business trips, hotel, property maintenance, property management fees, paying for the property, etc.?

Any advice is appreciated, thank you!

Scott Passman · Answer

Any expenses that are related to business from the LLC need to come out of that account.  You need to be careful not to mix personal finances with business finances because then you open up a can of worms legally and with the IRS.  I would work with a CPA to help you get things organized and to ask specific questions because they can help clear up what does and does not qualify as a business expense and how to maximize your tax efficiencies.

Trace P. · Answer

Scott, Nigel, and Michael, thanks that's very helpful! Hmm because I have incurred some business expenses prior to my business bank account being set up.. for example, flying into the state that I want to invest in, and where I eventually did set up my business bank account.

@Michael I am indeed a single member LLC. Why doesn't it matter then? I was thinking I may have to keep myself and my LLC as separate entities.

Ashish Acharya · Answer

For tax, it doesn't matter if you keep good records and receipts. You can spend money from any account and claim the deduction if you can prove that it was for business purposes.

For legal, yes you want to have a separate business LLC's account. If not, the use of your LLC is undermined.

Nigel Guisinger · Answer

I would talk with your local cpa regarding your state’s laws. However that being said if you have expenses and you pay using outside funds, you need to track that money because those are additional funds being invested by you into the company. That should show as additional contribution by you into the company. The problem with that is that banks could look at that as the business isn’t solvent to exist on its own for daily business and that is a problem in itself.

Trace P. · Answer

Thanks everyone! To summarize (note that I'm a sole proprietor for my LLC):

1) I will use my LLC bank account for all business expenses to avoid any legal implications. This includes not just paying for the property and associated costs like home inspection and closing fee, but also overheads like hotel / air ticket / food for my business trips.

2) To top up money in my LLC bank account, the funds can come from anywhere, e.g. my husband or sister can transfer money into it.

Let me know if there are more comments, thanks! 😊

Chris Thomas · Answer

@Tracy Pah

It does matter, which is the whole point for the LLC. Only in the beginning can you really get away with commingling funds because of the probable lack of cash. Each LLC protects a different asset. If funds allow, I’d consider an Llc for each prop under an umbrella. That way if prop 227 burns to the ground due to faulty wiring, the rest of your props are protected.

Trace P. · Answer

In addition to Han's queries... Does it matter who transfers money into my LLC business checking account, e.g. say my husband instead of me transfers money into my LLC business account, and then this money is used for my LLC business expenses?

Michael Ablan · Answer

@Tracy Pah - It should.  It doesn't HAVE to be, but pierced the corporate veil the moment you start commingling funds.  However, none of that matters if you're a single member LLC.  You have no protections when operating in that structure.

Han T. · Answer

Wow this question is quite similar to what I have to ask.

Instead of asking on business expense. I'll like to ask about funding the property purchase. Can I wire money from my personal bank account during the purchase of the property and then during the title transfer, transfer the title to the LLC instead of to me.

In a way, instead of injecting funds into my LLC bank account to fund the purchase... I inject the property into my LLC (But I don't transfer the title to me, instead it goes directly to the LLC).

For LLC must payments be made from LLC bank account?

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