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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12679
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I have an LLC and it appears that I need to put some money

Customer Question

I have an LLC and it appears that I need to put some money into it as a new store we've just opened comes to breakeven. How can I go about 'loaning' money to the LLC so that I can pay myself back rather than taking a disbursement at some future point?
I am assuming this has some tax advantage. Can you please give me some idea as to how to go about this and what the implications are?
Submitted: 2 years ago.
Category: Tax
Expert:  Lane replied 2 years ago.

Hi,

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When a member (Owner in LLC terminology) , puts up money to help the company stay in business, the investment can be treated as (1) an equity contribution or (2) a loan to the company that it has to pay back.

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But, because an LLC is a passthrough (meaning that profits are taxes as they're made (whether you actually take that money out for yourself or not) simply treating this as a capital contribution might be simpler ... (because, again, either way the money coming back as you is either a return of your capital or a loan repayment) neither of which is taxable ...... (although the INTEREST on the loan would be)

Expert:  Lane replied 2 years ago.

If you do TREAT is as a loan to the LLCs, you have to be careful to properly classify the loan in the company's accounting system and treat the cash influx as a debt that will be repaid.

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There should be a promissory note, a stated interest rate, you must have the LLC pay interest (or the IRS will impute interest at the AFR rate and charge taxes on it as if it were received either way.

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Expert:  Lane replied 2 years ago.

So, bot***** *****ne, putting money into the company can be treated as a loan OR as a contribution of capital.

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Repayment of the loan principal or simply pulling back some of that capital are not treated as income)

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The income that's required for the LLC to pay you IS treated as income AND the loan comes with more administrative "overhead:

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Hoped this helps

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Let me know if you have questions ...

Lane

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If this HAS helped, and you don't have questions, I'd appreciate a positive rating (by clicking the stars or smiley faces on your screen) ... that's how we're credited for the work here)

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