Single Member LLC and distributions to a member

[mdakota]

Hello,

I'm under a single-member LLC (pass-through taxation - disregarded entity). I file a form 1040 + Shedule C (Profit or Loss From Business). I want to take money out from a business this year (make distribution to myself from profit).

My question is: Will the distribution be considered as dividends for tax purpose? Do I have to show it on 1040 and pay an additional tax from the dividents? If yes, seems like double taxation, that is a disadvantage of an LLC

Please advice,
Thank you,
Mark.

[tranquility]

I don't understand what you are asking. But, if your question is, is the money I take out of the LLC's account considered a dividend, the answer is no.

[LdiJ]

Originally Posted by mdakota

Hello,

I'm under a single-member LLC (pass-through taxation - disregarded entity). I file a form 1040 + Shedule C (Profit or Loss From Business). I want to take money out from a business this year (make distribution to myself from profit).

My question is: Will the distribution be considered as dividends for tax purpose? Do I have to show it on 1040 and pay an additional tax from the dividents? If yes, seems like double taxation, that is a disadvantage of an LLC

Please advice,
Thank you,
Mark.

You have already paid the full tax on the profits. Whether you choose to take money out of the business account, for your own purposes, or leave it there for the business, is irrelevant.

[mdakota]

Thanks for your answers very much ;-) It's clear for me now. May I ask you additional questions?


1) As far as know, anyway, I have to make accounting records when I take money out from a business and draw up a document reflecting the business transaction. Isn't it?

2) Am I right that I'm not responsible personally for debts of LLC?

3) An LLC is responsible for debts within only the limits of the amount that remained in a business (after withdrawing some part of money from a business). Isn't it?

Thanks again.

[tranquility]

Maybe. While the goal of having an LLC is asset protection, as to if you actually get that protection depends on the facts.

[Kiawah]

So your intention is to take profits out of the LLC, and then not have money to pay the debts/liabilities of the LLC?????

Nice try

[davew128]

Originally Posted by mdakota

Thanks for your answers very much ;-) It's clear for me now. May I ask you additional questions?


1) As far as know, anyway, I have to make accounting records when I take money out from a business and draw up a document reflecting the business transaction. Isn't it?

Not for income tax purposes although a good idea.

2) Am I right that I'm not responsible personally for debts of LLC?

No way of knowing from what you've posted. That's between the lender, you, and the LLC. And yes, it IS material to the tax return if you are not responsible for the LLCs debts.

3) An LLC is responsible for debts within only the limits of the amount that remained in a business (after withdrawing some part of money from a business). Isn't it?

I have no idea what this means.

[LdiJ]

Originally Posted by mdakota

Thanks for your answers very much ;-) It's clear for me now. May I ask you additional questions?


1) As far as know, anyway, I have to make accounting records when I take money out from a business and draw up a document reflecting the business transaction. Isn't it?

You would want to note in your books the that money was a distribution.

2) Am I right that I'm not responsible personally for debts of LLC?

Not necessarily. Its fairly frequent for creditors to require personal guarantees when giving credit to a small business. Most likely you did give some of the creditors personal guarantees, even if you don't remember it now.

3) An LLC is responsible for debts within only the limits of the amount that remained in a business (after withdrawing some part of money from a business). Isn't it?

Thanks again.

You should only be withdrawing previously earned profits. If you have previously earned 50k that you paid tax on, but did not withdraw, then that's not a problem. If you previously earned 50k that you paid tax on, but withdraw 100k, somebody is going to have something to say about it.