pass-through income for an LLC?


C

CF

If I'm just going to do pass-through income for an LLC this
year, can I start using funds from my corporate account
(funded by checks to my LLC) for personal expenses? I'd
really like to pay off bills.
 
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G

Gene E. Utterback, EA

CF said:
If I'm just going to do pass-through income for an LLC this
year, can I start using funds from my corporate account
(funded by checks to my LLC) for personal expenses? I'd
really like to pay off bills.
IMNHO - It is a bad idea to pay personal bills from the
company checkbook. It would be much better if you wrote a
company check out to yourself, deposited it in your personal
account, and wrote personal checks to pay your personal
bills. It makes the accounting and reporting so much
simpler.

Gene E. Utterback, EA
 
K

Katie Jaques

If I'm just going to do pass-through income for an LLC this
year, can I start using funds from my corporate account
(funded by checks to my LLC) for personal expenses? I'd
really like to pay off bills.
I'm confused. Do you have both a C corporation AND an LLC?
Or is the "corporate account" to which you refer the LLC's
bank account?

In either case, you would be wiser NOT to pay personal
expenses from a business bank account. It only muddies the
water and makes it hard to keep track of deductible vs.
nondeductible expenses for the business.

If you take cash or property out of a C corporation, such as
writing a check from a corporate bank account to pay
personal expenses or to transfer to the LLC's bank account
for the same ultimate purpose, the distribution is a taxable
dividend to the extent that the corporation has earnings and
profits. If there is no, or not enough, E&P to support the
dividend, then the distribution reduces your basis in the
stock of the corporation ... and if your basis gets to zero,
any distribution beyond that is a taxable capital gain. In
any event, such a distribution is not deductible in
determining the corporation's taxable net income.

If you take a distribution from the LLC, whether by
transferring cash to your personal bank account or by
directly paying personal expenses from the LLC's account,
the distribution is not taxable income to you. However, it
is not deductible in determining the net income that passes
through to you from the LLC.

Better to keep it clean. If there is cash available in the
business, take it out as compensation or a distribution, put
it in your personal bank account, and pay your personal
expenses from there. Another alternative would be to take
the cash out as a loan, but it must be at a FMV interest
rate and must be documented and repaid in accordance with
its terms, or you risk having the loan recharacterized as a
constructive dividend.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.
 
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S

Stuart O. Bronstein

IMNHO - It is a bad idea to pay personal bills from the
company checkbook. It would be much better if you wrote a
company check out to yourself, deposited it in your personal
account, and wrote personal checks to pay your personal
bills. It makes the accounting and reporting so much
simpler.
Not to mention that paying bills directly from the LLC's
account could cause a court to allow LLC creditors to sue
you personally rather than be restricted to the LLC's
limited liability.

Stu
 

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