How do I manage self-employment tax with a startup that received and angel investment but has yet to make income? There were draws to pay sole owner (LLC)

[Nichole]

The investment was used to pay for a technology build and living expenses for myself. The technology had yet to make money in 2018

[KristinaK · Accepted solution]

Since you are the single member of the LLC AND if you have not elected for the LLC to be treated as a corporation, you will report income (if any) and expenses on your own Schedule C.

Investment is not income. It's a loan to the LLC. Unless you have given part of the ownership to the investor in exchange for funding. In this case, you are not a single member LLC and an entity tax return must be filed.

Again, if it's a single member LLC, draws that you took out of the LLC to pay your own personal expenses are not an expense and should not be recorded on your tax return. However, you do need to keep track of them to report to your investors. I recommend using QuickBooks software to properly run your books. It will generate a Profit & Loss, as well as a Balance Sheet (and that's where assets, liability and equity will show up).

Expenses to pay for technology can be deducted. Even if there is no income.

Candidly, I suggest you talk to a tax professional who can guide you regarding your LLC set up and treatment. If it were just you -- it's one thing. When other people's money is involved, it's a whole new level of reporting and liability.