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I and a handful of relatives inherited a "family cottage" (a recreational cabin in the woods) from my Grandparents, who organized it into an LLC before passing it onto us in the form of divided LLC shares. Up till now we have been paying bills for the cottage as they come up, but are looking to shift to a model where LLC members contribute a regular monthly amount instead, based on the percentage of their shares, designed to cover paying bills AND saving up for future capital improvements and renovations.

In addition to that, we are also establishing small usage fees ($5 a person) for overnights for both members and non-members. (Non-members are usually, but not always, members of the extended family who aren't shareholders in the LLC). These are designed to cover basic utility expenses (propane, water, etc.).

A couple of tax questions came up in our last meeting:

  1. If we members are contributing (based on share percentage) to the LLC savings account above and beyond what is needed for immediate expenses, is that additional amount taxable by the IRS as income?
  2. Will flat usage fees count as taxable income, especially if they come from non-members?

The LLC is registered in Washington State (which has no income tax). I am mostly concerned about federal IRS implications.

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  • There is no such thing as an LLC federally, it's pass-through to shareholders.
    – Ron Beyer
    Commented Nov 2, 2021 at 2:43
  • @Ron Beyer does that mean that whatever shareholders contribute to the LLC won't be taxed since it's coming out of their own income and is therefore a zero-sum transaction? Is the only thing we might have to worry about, non-members paying usage fees?
    – James Dunn
    Commented Nov 2, 2021 at 3:01
  • @JamesDunn Won't some members get a share of usage fees that exceed the fees they pay in and thus have income? Commented Nov 3, 2021 at 0:48
  • @David Schwartz, yes, in theory. However, these usage fees will only partially cover expenses, and so theoretically after deducting business expenses the taxable income produced by usage fees would be less than zero.
    – James Dunn
    Commented Nov 3, 2021 at 19:21

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