Materials Paid for by Different Person

[pintmich]

Hello - My company is a single-member LLC and I only recently opened a bank account for this business.   Prior to opening the LLC's bank account, significant material inputs for my product were paid  of out my son's personal checking account to the seller via Ali Baba.  However, the invoice was still issued in the LLC's name.  There is proof the payment via Ali Baba matches the invoice.   May the LLC still claim these material input costs as part of its COGS? If so, is there anything I need to do?

[halpalms]

only if the LLC made payment.....the matching invoice is fine but the LLC should have paid for the material.

[pintmich]

@halpalms Does that mean I have to literally put money into the LLC bank account and send money of the exact amount to my son's bank account?

[pintmich]

Bump

Do I need to prove the LLC made the payment even though the money came from another account?

[Critter]

If the IRS questions it you should have some sort of paper trail.  

[Carl]

First, any and every monetary transaction needs to be run through the business bank account, with no exceptions. Period.

Lets say you borrowed $5,000 from your son to purchase your first round of inventory before the bank account was opened.

Now you have the inventory and the bank account is then opened just prior to making your first sale. Then you have the $5,000 from your W-2 job and now want to pay your son back.

You will deposit the $5000 into the business account and label it as your "capital contribution" to your business. This keeps you from being taxed on it as business income, since you already paid taxes on it as W-2 income.

The next day you will withdraw the $5,000 and use it to pay your son back. The withdrawal should be labeled as "return of capital contribution" so that it's not taxed to the business side of things as an owner's draw.

[pintmich]

Thank you Carl