How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Stephen G. Your Own Question

Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4047
Experience:  Extensive Experience with Tax, Financial & Estate Issues
30050794
Type Your Tax Question Here...
Stephen G. is online now
A new question is answered every 9 seconds

Individual business owner "Tom" has 2 LLCs, LLC-A and

Resolved Question:

Individual business owner "Tom" has 2 LLC's, LLC-A and LLC-B. Each with its own separate bank accounts at the same Bank Z. If Tom online transfers $1000/- funds from account A with LLC-A to account B with LLC-B, and 6 months later, transfer the $1000/- funds back LLC B to LLC-A

How should the books of LLC- A and B show the transaction

a) Owner distribution/ Draw in each LLC
b) To/From Liability account in each LLC?
c) other?
Submitted: 11 months ago.
Category: Tax
Expert:  lucy7368 replied 11 months ago.
Hi,

My name is XXXXX XXXXX I'd be happy to answer your questions today.

Each LLC is a separate legal entity from each other, and from the owner. That means that the owner of multiple LLCs cannot simply transfer money from one to the other. LLC A could loan money to LLC B pursuant to a written loan agreement. LLC A could then later repay the loan in connection with the terms of that agreement. It may be necessary to have a board meeting where LLC-B agrees to loan the money to LLC-A, if this is not ordinarily the type of transaction that LLC-B would engage in. Essentially, it must be clear that the owner is not using the LLCs as separate bank accounts but is actually treating them as legal entities and observing corporate formalities.

If the owner can take a distribution from LLC-A consistent with the operating agreement, he is permitted to take money for himself. He could then give a loan to LLC-B.

Take a look at this article, which explains more about corporate formalities and why it is important to maintain them.
http://www.businesslawpost.com/2010/09/what-are-corporate-formalities-and-why.html


If you have any questions or concerns about what I've written, please reply so that I may address them. It's important to me that you are 100% satisfied with the service I provide. Otherwise, please rate my service positively so that I get credit for answering your question. Thank you.
Customer: replied 11 months ago.


Lucy,


I understand the need for corporate formalities. My question has to do specifically with the Accounting or Bookkeeping aspects of the problem and how to record the movement of funds, assuming that all corporate formalities have been observed. I am not sure why a Lawyer is involved in answering this question


Best regards


Hari

Customer: replied 11 months ago.
Relist: Other.
My question should be directed to an Accountant or CPA for an answer
Expert:  Stephen G. replied 11 months ago.
Hello, my name isXXXXX & I'll be helping you today. My goal is to give you a complete & accurate answer that you can understand.

First of all since you aren't currently online, I'll make a couple of assumptions & if they aren't correct, let me know & we can discuss further.

I presume that Tom is the sole member/owner of both LLCs.
I presume therefore that for income tax purposes Tom's income tax reporting of the LLCs is either on one combined Schedule C or two separate Schedule Cs reporting the activity of each LLC by including the Schedule C(s) on his personal income tax return.

If that is the case, then I must disagree with the previous expert in that no matter how you do the "bookkeeping" it doesn't matter from an income tax standpoint. The reason is that as a sole proprietor there is no tax reporting of business assets/liabilities except possibly inventory as a component of cost of goods sold & fixed assets as the basis for depreciation computations.

So transactions between the sole member/owner and himself may be handled as "loans or advances" between the LLCs or between either LLC and the Owner or pretty much any other recording method that serves Tom's purpose & doesn't involve any affect on profit or loss.

Therefore, your question as to whether either of your examples in your question are proper, the answer is that both are acceptable. If it were me, and separate sets of books are being maintained for each LLC, I'd use your example (b), because that is actually what was done. There's no problem transferring funds between the LLCs as long as you are the sole owner/member of both LLCs.

If there were other/member owners then that type of a transaction should either be covered in your operating agreement or the transaction should be approved in writing by the managing member and/or all of the owners, as the case may be.
Customer: replied 11 months ago.

Stephen G,


This is precisely the guidance that I was looking for. I have just one more follow up question relating to the last paragraph.


Would you suggest any thing different if TOM was not a sole owner but partnership and Tom(Jr) had discretionary powers to move funds.?


Best Regards- hari


 


 


 

Expert:  Stephen G. replied 11 months ago.

That's a different situation if Tom & Tom(Jr) are equal partners. One way or another, Tom(Jr) has to approve the transaction.

The other thing you need to understand, is that the amount of money you are talking about makes a difference. You can't just extrapolate the principals relayed here to all similar situations; things like the affect on the financial position of either LLC would enter into consideration. It wouldn't affect the accounting for the transaction, but it could easily affect the propriety of transferring funds between LLCs in the first place.

Absent the historical knowledge of the actual specific situation and the parties involved, from my standpoint I'd much rather work with the actual factual situation that you are dealing with, rather than hypothetical examples that you (& only you) have determined parallel the actual situation you are really talking about.

 

In answering your follow-up question, the accounting wouldn't change, except that you wouldn't want to be running the transaction through the draw(s) accounts of a partnership, but rather your initial solution (b) would be more appropriate.

Remember, in a partnership there is a separate income tax return for the partnership and a continuity in the tax reporting of partnership assets and liabilities (balance sheet) on the partnership tax returns (Form 1065), whereas with a sole proprietorship there is no such reporting for income tax purposes.

Of course, it goes without saying, that if the ownership of the two LLCs involved were not the same, although the recommended accounting treatment wouldn't change, the propriety of cash transfers between the LLCs would add another whole set of considerations to the equation.

 

I'll leave my contact information here at JustAnswer.com in case you want to reach me again in the future. Please remember to rate my response as that is the only way we get credit for our work.

 

If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Thanks again for using us for your tax and financial questions. You may get a short survey from the site; if it isn't too much trouble I would appreciate it if you would answer it; the survey results are used to rate our performance;

Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4047
Experience: Extensive Experience with Tax, Financial & Estate Issues
Stephen G. and 2 other Tax Specialists are ready to help you
Customer: replied 11 months ago.


Stephen G,


Your response is thoughtful and much appreciated. I will mark my questions with the "Steve G" at the beginning when I call upon your services in the future. Thanks again


Best-Hari

Expert:  Stephen G. replied 11 months ago.

Thanks very much for rating my response and for using JustAnswer.com.

 

I look forward to working with you again should the need arise.

 

Steve G.

 

 

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.