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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I STARTED A BUSINESS FORMED A LLC, IN THE FIRST YEAR i HAD

Resolved Question:

I STARTED A BUSINESS FORMED A LLC, IN THE FIRST YEAR i HAD THE BUSINESS PAY FOR SOME PERSONNAL EXPENSES, LIKE MY RENT AND CAR EXPENSES

HHOW DO I ACCOUNT FOR THESE PAYMENTS ON MY TAX RETURN?
Submitted: 4 years ago.
Category: Tax
Expert:  Merlo replied 4 years ago.

Hello mmg,

 

If you are a single member LLC, then the income from your LLC simply flows through directly to you and is reported on Schedule C of your personal tax return. On that same schedule you will deduct any business expenses you had and will end up paying taxes on your net income from the business.

 

You cannot simply deduct your personal rent expenses and car expenses as business deductions. You need to allocate how much, if any, of those expenses were for business use. If you rent a home or apartment and use part of the space as a business office, then you could deduct the same percentage of your rental expenses as a home office business deduction. If you use your personal car for both business and personal reasons, then you can either claim a mileage deduction based on the miles you drive for business or you can claim the actual expenses you had for driving the vehicle for business. But you cannot deduct all of these expenses if the car is not 100% used for business.

 

 

Thank you mmg

 

 

Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Merlo and 6 other Tax Specialists are ready to help you
Customer: replied 4 years ago.

ok still a little confused

For example let me lay out this scenario

 

Company earned 10k net profit on the business, not including the personnal expenses

 

I paid from business 20k for personal expense. these payments are not included in the year end P and L

 

So at end of year ompany company, because I took 20 k out of the business, the business has more debt then when it started beacuse I took 20 k from the business

 

How do I record the 20k I took from Company ?

Expert:  Merlo replied 4 years ago.

Hello again mmg,

 

You must first report ALL of the income. You cannot just report the net profit. The personal expenses that you paid from the company profits are not all deductible.

 

On Schedule C you must report all of the income your business received for the year. You then deduct your allowed expenses. As I explained earlier, you may be able to deduct a portion of your rental expenses if you used a part of the property as a business office. You may also deduct a percentage of car expenses if you used the car for both personal and business reasons. But you cannot simply deduct your entire personal rent payments and your entire car expenses, if they were not entirely used for business.

 

The $20,000 that you say you took out of the business must be reported as income along with any other business income you had. And then from your total income you can deduct your allowed expenses only. You cannot simply pay your personal bills out of the business account and not report that as income.

 

 

Thank you mmg

 

 

Customer: replied 4 years ago.

ok I understand that I can not deduct the 20k as in the example,

 

so, in the example, I must report the 20 k as income, where do I enter that income on my tax return, or should I have the business give me a 1099 for that money

 

Can I also create loan to officer account for some of the 20K /

 

thanks for the quick reply and I am glad to pay extra for the advice, I jsut want to make sure I am getting it correct

 

 

Expert:  Merlo replied 4 years ago.

Hello again mmg,

 

If you are operating your business as a single member LLC, all of the income and expenses from the business are reported on your personal return by filling out Schedule C which is used by sole proprietors. Your net income after expenses is then what is subject to tax. You do not need to issue yourself a 1099 form.

 

You can have the business loan you part are all of the $20,000, but that does not alleviate you of the requirement to still report it as income for the year. You still earned the money regardless if you now take that as a loan or not, and the income must be reported in the year that it is earned. A loan is not considered an expense because eventually it needs to be repaid to the company. But with a single member LLC, loans do not really make any difference. You are basically borrowing your own money.

 

If this was helpful please press the Accept button. It is the only way we receive credit for helping with these questions.

 

Thank you mmg

 

 

 

 

 

 

Customer: replied 4 years ago.

ok

 

Sorry I am being a bit slow understanding this,,and still have some questions

 

was wondering ifit is possible to have a phone call consultation, if so what would you like to charge

 

 

thanks

 

 

 

 

 

Expert:  Merlo replied 4 years ago.

Hello again mmg,

 

Unfortunately the JA website does not permit us to exchange personal contact information with the customers, and we are not allowed to communicate with the customers here outside of this forum.

 

I am happy to answer additional questions for you, but it cannot be outside of this forum.

 

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