taxes, llc, paymentSo, I have recently created an LLC and although income is fairly limited from this, I’m wondering how I can legally and IRS-appropriately take money from the account for personal use.
I would figure that I can make transfers (since the business bank account and my bank account are sort of linked) and record every transfer. But when thinking about taxes, what does that mean for me or my company?
The IRS by default considers a single-member LLC as a “disregarded entity” for tax purposes and treats it as a sole proprietorship.
-http://smallbusiness.chron.com/pay-myself-llc-3658.html
But unfortunately, I don’t understand these words - it’s not english to me! (I’m a web designer/developer… I understand many code languages, but not business talk!)
I figure paying myself does not affect the bottom line of the business income, but does the business have to file a form for me with the amount given? Do I have to file personal taxes showing that the business paid me?
Any help (in small words) would be greatly appreciated! Thanks!
LLC provides some protection of your personal assets from the liabilities of the company. From the IRS perspective, though, all company income is yours immediately no matter what account it may be in, and all expenses are personally yours as well.
In other words, the limited liability company provides limited protection from creditors, customers, contractors and other organizations, but nothing… absolutely… nothing… protects you from the IRS.
For tax purposes you will report your income and expenses on a Schedule C just as if there was no LLC.
The only difference would be if you had a partner, but it sounds like you are a single member LLC. I can update the answer if that is not the case.
Paying yourself and paying taxes are different. You pay taxes and then you transfer to you want you chose. What you really need to be careful about is paying yourself too much and moving money back as that is commingling of funds. What you need to do there is formally loan money to you company. Consult an attorney and or CPA.
As single-member LLC, you can transfer money (e.g. between bank accounts) whenever it's convenient for you and it's called dividend. And yes, you've to file personal taxes showing that the business paid you, because disregarded entity means that your business type is separated entity from the owner for liability purposes (LLC stands for limited liability company).
Here is example how it works in the UK (should be fairly similar in US), when you pay yourself, you need to create Dividend Declaration which consist payee, date and value of payment. This can be created by your accountant or by accounting software (which can do that automatically based on your imported bank feed).
Example declaration form:
Directors Meeting Held On: X, Directors Present: X, Held At: X
At a meeting of the Directors of the Company held on the above date, it was proposed and resolved to confirm the payments to the shareholders of the Company Dividends in the proportion of their respective shareholdings in the amounts shown below.
The total distribution details are: Net Dividend: £X, Tax Credit: £X, Gross Dividend: £X
Payment Details: Payee: X, Value: X, Date: X
then keep it for your record. Your Gross Dividends amount consist Total Paid + Tax Credits.
On your company tax return, you need to enter total dividends paid.
And on your personal tax return (UK: self-assessment), only net amount should be placed in Income section of your Tax Return form.
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