Single member LLC question


Joined
Sep 21, 2010
Messages
1
Reaction score
0
If a single member LLC had a net profit of $3000 in a fiscal year and if the owner took a $10000 draw for the entire year, what would be the tax obligations under US federal law. Does the LLC member pay taxes on both $3000 and $10000.

thanks.
 
Ad

Advertisements

Joined
Sep 21, 2010
Messages
3
Reaction score
0
Single member LLC's are disregarded entities for federal purposes (the specific state you are in may require you to file a separate state LLC return). So, the member reports the activity on Schedule C of his/her 1040, you are basically a sole proprietor for the IRS.

With any pass-through entity (partnership, S-corp, or multi-member LLC) you would keep track of the basis of the partner or shareholder, which changes each year. Losses, or distributions exceeding the basis, would impact the taxation thereof.

As a sole proprietor (or a single member of an LLC), you are not required to keep track of your basis, you don't even need a balance sheet. That means, distributions (or draws) will NOT impact taxable income. In your case, only the $3k is taxable income.

If you paid for all startup costs with personal funds, you created equity. However, if your draws exceed your contributions and net income, it will result in negative equity, and might have tax consequences down the road. For instance, if they ever wanted to incorporate, you will have to bring your basis back up, and recognize gain at that point.

Hope this helps.

Dieter
 
Last edited:

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top