Hello, thanks again for requesting me
to confirm that these are in fact return on capital they need to be recognized for each relevant LLC/s-corp as such
it's not enough to lump them together as each individual company needs to file its own taxes and each individual capital account is separate and apart from the other capital accounts
you are correct to note that if not properly recognized as capital return they may be viewed as capital gains or worst as ordinary income...
They are , however; the owners balance sheet does not reflect the correct amounts for each LLC someone before me decided they needed to create a new set of books and didn't enter the starting balances. As far as I can tell this all money he is being paid back from the initial start of the entities. I'm concerned because his balance sheet accounts are all negative numbers. Is this correct? I'm sorry I just don't know enough about " capital " to understand
negative capital accounts are tricky because that could mean that there was a loss in a given year and then you would need to figure out what caused the loss and whether the member has enough basis to absorb the loss. In addition, if these are not single member LLCs then you would also need to at the operating agreement of those LLC to determine if he has the obligation to restore the negative capital account (i.e. bring it up to 0 at least)
So , really these should all be classified as loans? They are all single member LLC's and all of them owe him money for the money he invested to start the companies.
they can either be loans or capital. You need to look at prior tax years as you don't want to misclassify something that was previously already identified
For example LLC 3 was originally 945k loan/capital contribution of which they have paid back $345985 booked as "Return on Captial"
loan or capital contribution are separate categories. The 945k would need to parsed out as to what it was originally (or how it was claimed originally)
it was parsed out as "capital contribution" , the only thing different on the balance sheet I sent you is that I have broken down the disbursement by company
what a mess
sounds like a mess...
yeh, I have had a headache for the last 3 hours
I would think that the way the capital accounts are currently posted is really just a means to track where is his money is , and how much he's owed back before it would be considered income. Right now they all owe him, so when those number get back to 0, then we should be concerned. Does that make sense?
the companies can return a capital investment to him which would not be taxable but that money should have been recognized in the LLCs tax return as capital otherwise the IRS may treat this as distribution/income
Thank you for allowing me to assist you
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