Made a mistake. Cash withdrawn from business checking. Help.

[wmmuller92]

Hello! I recently began my business and filed as an LLC at the end of November 2019. At that time I received what I've realized to be some pretty atrocious tax advise regarding my business checking account and how I pay myself.  This is a single person LLC and to my understanding will be filed as an S corp if that is relevant. Basically I was told that there was no concern with withdrawing cash from the business checking account and I now know this is a huge no no, a big red flag to the IRS, and could destroy my LLC protection. I did so twice, one time for $40 and another time for $80. This felt very fishy and I began researching more about the IRS' outlook for records that are maintained. Again I now know this is a terrible practice. Now I am worried about how to account for these two ATM withdrawals in my accounting. I'm also now questioning if I know how to pay myself from my business at all. My research says that I simply need to transfer money from my business checking into a personal checking so that there is a paper trail that appears as a payment to myself essentially. Is this correct? And any advice regarding the ATM withdrawals is greatly appreciated. Thank you in advance!

[Critter]

I highly recommend you seek local professional advice since you are not even sure if you got the EIN as an S-corp or not.  And taking draws of less than $120  is nothing to be worried about.  The person you talk to should explain the difference between a single member LLC and a corporation  along with all the pros/cons of doing either of them. 

[wmmuller92]

Thank you for your response. I know that I did not get an S corp, my EIN is an LLC. It was just my understanding that when it came to filing taxes because it is a single person LLC that it is treated as an S corp.

[VolvoGirl]

It matters a lot if you elected your Single Member LLC to be a S corp.  It either is or isn't an S corp.  If it is not a S corp it it a disregarded entity and you file it on Schedule C in your personal tax return.  

[VolvoGirl]

This first year you better go to an accountant and get your taxes setup and done right.  And to understand what you have and need to do.

[Rick19744]

I agree with @Critter that for the amount of $$ we are talking about, don't lose sleep.

Based on your facts and questions, I also agree it would be good to get some professional tax advice for your initial year so you get started on the right foot.

Some follow-up comments:

• As noted, there is a difference between a single member LLC that is treated as a disregarded entity and a single member LLC that elected to be taxed as an S corp.
• In order to be treated as an S corp, you would have needed to make a specific election and you would have received confirmation back from the IRS that they accept your election to be taxed as an S corp.
• If you have not elected to be taxed as an S corp, you are completely okay, but still advise that you get some professional advice on how to move forward and understand best practices for the type of entity you are using

[wmmuller92]

@VolvoGirl  and @Rick19744   Thank you for your responses, I appreciate your insight. That all makes more sense now. I did not elect to be an S corp. I will definitely be using a professional to file my taxes and will reach out to one regarding best practices. 

[Rick19744]

You are welcome.