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CGCPA
CGCPA, CPA
Category: Finance
Satisfied Customers: 3820
Experience:  40+ years experience in taxes and financial planning
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Hi. I have started an LLC and have incurred substantial start

Resolved Question:

Hi. I have started an LLC and have incurred substantial start up costs, paid personally. I've recorded these as a debt on the company's balance sheet. Now that I am beginning to generate some revenue, I have a question: Are payments to me to be accounted for as repayment of this debt or as payroll expenses (requiring me to generate a wage report for tax reporting purposes)?
Submitted: 4 years ago.
Category: Finance
Expert:  CGCPA replied 4 years ago.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

 

As a single member LLC you will be required to file and pay taxes as a sole proprietorship. Therefore you cannot receive a wage from the LLC. You are, however, going to be taxed on the profits of the LLC whether you withdraw them in this year or at a later time. You are free to withdraw money from the LLC as you wish. Of course, you will want to leave sufficient funds in the business to permit it to continue to operate. The initial outlays can be withdrawn as you see fit. In accounting for these costs please remember that they are not only obligations to you (or capital contributions if you prefer) they also qualify as deductible business expenses. Some will be deductible this year as normal operating expenses, some via a Section 179 deduction (subject to income limits), some over several years. You will want to read the instructions for depreciation and amortization (including the Section 179 deduction). These are available at the IRS web site http://www.irs.gov/ Search for the instructions for form 4562. Last year there was a deduction for start up and organization expenses of up to $10,000. This has not been extended into 2011 just yet. Keep your eyes open for news on that. This IRS publication will also be useful:

 

http://www.irs.gov/publications/p535/index.html

 

Customer: replied 4 years ago.
Thank you. XXXXX am not taking a wage, for accounting purposes, what account name should I use for funds I take out of the business? Distributions? Withdrawals?
Expert:  CGCPA replied 4 years ago.
Commonly used names for the account are withdrawals, draw, drawing. It is a balance sheet account and, as you might guess based on the way you will be paying taxes, does not impact the profit/loss.
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