USA Multi-Member LLC Tax Question

Apr 10, 2019
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United States
I work for a small Multi-Member LLC providing consulting services (to the Government) in California. As a new LLC, we are currently using cash-basis accounting but may switch to accrual-basis in the future. Employees accrue 1.25 days of PTO each month.

1) Would it be correct in saying at the end of the year, any cash that the LLC wishes to keep in reserves for the future (e.g. in case we lose a gov't contract and need to keep an employee on overhead, saving for a facility, saving for a company event etc), will be taxed evenly amongst the members/distribution amounts. As such, the tax on the cash reserves will essentially be 35% (fed tax rate) + 9% (CA tax rate) + 2.35% (medicare) = 46.35%?

2) If an employee accrues 15 days of PTO in a year and ends up using 0 days of PTO that year, the LLC has to carry the monetary value of PTO liability to the following year (we'll say it's $10,000). At the end of the year, will the $10,000 then get taxed (since we're using cash-basis) or is the LLC able to set the $10,000 aside without taxes, since it is an expense we will have to pay in a later year?

Any guidance would be greatly appreciated!


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