LLC Question

[whodunit]

If I form an "LLC" with my wife and I as the only members, how do we take profit out of the business? Do we have to treat ourselves as employees with all the deductions?

I know an "LLC" and a "corporation" are two different things, but is an LLC basically a "type" of corporation?

[DAVID In Wisconsin]

LLC's are pass through tax entities. The LLC has some paperwork to file but pays no actual taxes. The owners of the LLC pay taxes on any profits on their personal tax forms. Any profits that you have, you'll pay personal taxes on even if you leave it in a business account. A LLC is a Limited Liability Company.

[fordy]

Originally Posted by whodunit

If I form an "LLC" with my wife and I as the only members, how do we take profit out of the business? Do we have to treat ourselves as employees with all the deductions?

I know an "LLC" and a "corporation" are two different things, but is an LLC basically a "type" of corporation?

................I believe you're referring too a Sub. Chapter S corporation ! Last I read it can have as many as 35 stockholders , all losses and income is reported on a K-1 form for each stockholder where the nature of all income and loss items are reported . Then , those items listed on the K-1 form are then transferred over too specific tax forms and finally endup on the 1040 form .
.................The Sub S corp. is a Conduit , it pays NO Tax , it has the limited liability of a regular corporation , the partnership reporting facet without making ALL partner(s) responsible for all the stupid decisions made by any single partner and it allows the income too be reported by each stockholder as IF they were a Sole Proprietorship . For a small business it doesn't get much better than this . , fordy

[Tom in TN]

whodunit,

An LLC is actually a Limited Liability Company, not a Limited Liability Corporation. It is not incorporated. It is a blending of limited liability like a corporation and pass-thru income taxing like a partnership or sole proprietorship.

You can withdraw money from the LLC in the form of regular distributions (like a salary), at any time during the year that you want some money, or at the end of the year if you want to distribute the net proceeds in the LLC.

In any event, any money that you take out of the LLC, plus any profit that is retained in the LLC at the end of the year that you haven't withdrawn, is reported to you on a form K-1. The K-1(s) are reported to the IRS at the end of the year. You pay personal income tax on the amount reported on the K-1.

There are many more considerations affected by the LLC status. You would want to consult a good accountant/tax preparer to make a final decision.

Tom in TN

[Parttimefarmer]

Also check out a LFP. Get a good accountant.

[whodunit]

Thanks, all! I had done some research after I posted the question, but it still left me with a few unanswered question which ya'll answered.

I guess one thing about an LLC is to be strict about keeping your personal and business finances completely separate. From what I've read, paying a bill or purchasing equipment with an personal checking account or credit card can open you up to being sued personally if something goes awry.

I also read that the courts will sometimes allow personal lawsuits in cases of fraud.

Interesting stuff!

[fordy]

Originally Posted by whodunit

Thanks, all! I had done some research after I posted the question, but it still left me with a few unanswered question which ya'll answered.

I guess one thing about an LLC is to be strict about keeping your personal and business finances completely separate. From what I've read, paying a bill or purchasing equipment with an personal checking account or credit card can open you up to being sued personally if something goes awry.

I also read that the courts will sometimes allow personal lawsuits in cases of fraud.

Interesting stuff!

.................I'd also encourage you to investigate a Sub S Corp , and it's benefits with a CPA before you engage anyone too setup your business structure . It usually the case that anyone wanting too set up a small business can start out and organize yourself as a sole proprietorship with a business plan and see IF your ideas will actually make money ! OR , you can spend significant amounts of $$ and you still won't know IF your idea's will work . Your SS # is all you need to start a small business , some will tell you you need a TIN(txpayer identification number) but it ain't necessarily , True ! If , your idea starts making a profit and you think your bizz will grow and expand , you can always add layers of complexity and formal structure . , fordy

[mldrenen]

there's a lot of confusion out there about LLC's. the bottom line is, LLC's are not tax entities. they are legal entities that provide liability protection but offer no tax advantage on their own. they are also regulated on the state level, not federal.

if you create an LLC for a business that you run, it would most likely still be reported on your income tax return in the same way it was before you created the LLC.

you can create an LLP (limited liability partnership) or a combination of an LLC and a corporation. those combinations afford you the liability protection of an LLC with the different tax structures of partnerships and corporations.