Transfer of funds to LLC checking account - tax deductible?

[Anonymous]

In 2017 we started an LLC and transferred some money from our personal account to the LLC checkings account for initial funding. The LLC is a single-member so we report all income and expenses on our personal tax return.

My question is if that transfer of funds qualifies as a deduction in itself? If so I'm assuming it works the other way around as well - that is, if we transfer the money back to our personal checking account it would need to be reported as income?

Ideally I'd like to be able to transfer money back and forth between the two bank accounts without triggering a taxable event, and only deduct expenses / pay for income. But then I'm not sure how the IRS sees it.

Thanks in advance!

[VolvoGirl]

A Single Member LLC is a disregarded entity.  It is the same as you personally.  It doesn’t matter which bank account (business or personal) or credit card you use.  It’s all yours.  You just enter the actual expenses you paid.

[JulieH1]

No.

You don't pay taxes on the money you put into the business and it is also not deductible. 

The reason is that it is assumed that you have already paid taxes on that money. The money you put into the business is considered your equity in the business, not income. You will, however, have to pay taxes on your profit.

You should be deliberate in your transfers. If you get in the habit of moving small amounts of money from one account to the other for no apparent reason you could "pierce the corporate veil ". That means that the government could decide that you are not operating as a separate entity, and revoke your limited liability protection.

You can make loans to your business and charge interest, but that will trigger personal income from the interest earned and a deduction for the interest paid.

[JulieH1]

If you are interested in a disregarded entity information and the corporate veil, see this link.  
<a rel="nofollow" target="_blank" href="https://www.law.com/insidecounsel/2012/01/11/regulatory-piercing-the-veil-of-a-single-member-ll/?slr...>

[Anonymous]

Hi Julie - I was told it is preferable to keep separate bank accounts for the business and myself. In that case, I would have to occasionally transfer money in to fund the business, and transfer money out when it's profitable. Are you saying that's a pattern I need to avoid?

[JulieH1]

As needed is probably ok, but not daily or regular.  Definitely, check with your attorney.  I am an attorney but I do not know your personal situation.  I was simply warning you to be aware and on notice that it can be a problem. Good luck!

[danddk]

You say above that the money is equity and thus not taxable, but you don't say how to show it or haw to pay yourself back.  My K-1 says the business made $45,000, but $30,000 of that was taken to begin to pay myself back.  So how do I not pay taxes again on this money in my personal taxes?

[V_RocKs]

#1 Do not move money into and out of your business and personal bank accounts for anything other than business purposes. If you do, you will have pierced the veil and it can have issues for you later on if you ever run into tax trouble or legal trouble and need to keep your business separate from you.

#2 You can put money into your business account and it is NOT income for your business. I think the issue you are having is that you are unsure of what is income and what isn't. Downloading your banking statements into a CSV file for Excel can be a problem. You sort by deposits and then sum that number? Hmm... But now it shows that $10,000 was put into the business by you, not from sales of goods or services. You do not show that $10,000 investment as income anywhere on your tax forms. You do show the $45,000 you made. And you do this with a Schedule C, not a K1. You are a single member LLC not a partnership. To the IRS you will have made $45,000. They don't care that you only paid yourself $30,000. You are a single member LLC so everything it makes is passed through to you. You only pay taxes once because the LLC doesn't pay taxes (besides state if applicable). The LLC passes all income and tax liabilities to you.

#3 Do not do what the original replier said to do. You should NEVER pay a personal credit card with your business account and vice versa. Why? Let's say that down the road you get into legal, financial or tax trouble. If your business was always a business and your personal finances were always left to be personal, entities cannot go after your business if you are in personal jeopardy. Again, vice versa. If your business runs into issues and you were using it like a piggy-bank it is no longer considered a separate financial entity and it can ruin the whole point of having a LIMITED LIABILITY company.