How can I withdraw money from my LLC?

Question

I am the sole member of an LLC. I am going to open up a bank account for it. I have $5,000 that I want to open it with.

If I understand correctly, I am allowed to pay myself from the profits at the end of the fiscal year. But what if I want money before the end of the fiscal year? How can I withdraw money early? It's tough for me to pay myself a salary, because I don't know how much, if any, money the business will make.

Let's say I want to buy a new laptop for personal use, but I have no money in my personal checking account. How can I get the money out of the LLC bank account for me to buy this laptop?

Should I only open the account with the bank minimum $50, and then add more as needed? Or what other approach should I take?

(I hope this question is not too broad...)

Answer 1

There are TWO parts to an LLC or any company structure.

Liability shield

This being the entire point of creating an LLC.

The context is that a lawyer is after your LLC, and he's arguing that the LLC is not genuine, so he can go after your personal assets - your house, car, IRAs, tap your wife's salary etc. This is called "piercing the corporate veil".

What would he use to claim the LLC is not genuine?

• Commingling assets - mixing and confusing LLC and personal money in the same accounts, buying yourself a sofa with LLC assets, etc.
• The LLC was never adequately funded to operate as a standalone business, i.e. didn't have enough cash on hand to pay insurance deductibles on a claim.
• Doing something dirty, using the shield to evade consequences.
• Ignoring the "corporate formalities" such as having meetings with minutes, having written bylaws and enforcing them.

The determination here is between you and the judge in a lawsuit.

Suffice it to say, the way you withdraw money must consider the above issues, or you risk breaking the liability shield and becoming personally liable, which means you've been wasting the $25 every year to keep it registered.

Taxation

The IRS has a word for single member LLCs: "Disregarded entity".

The IRS wants to know that the entity exists and it's connected to you. But for reporting tax numbers, they simply want the LLC's numbers folded into your personal numbers, because you are the same entity for tax purposes.

The determination here is made by you. *LLCs are incredible versatile structures, and you can actually choose to have it taxed like a corporation where it is a separate "person" which files its own tax return. *

The IRS doesn't care how you move money from the LLC to yourself, since it's all the same to them.

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The upshot is that while your own lawyer prohibits you from thinking of the assets as "all one big pile", IRS requires you to. Yes, it's enough to give you whiplash.

Answer 2

Generally, unless you explicitly elect otherwise, LLCs are transparent when it comes to taxes. So the money in the LLC is your money for tax purposes, there's no need to pay yourself a salary. In fact, the concept of salary for LLC members doesn't exist at all. It is either distributions or guaranteed payments (and even that is mostly relevant to multi-member LLCs).

The only concern is the separation of personal and LLC finances - avoiding commingling. Mixing your personal and business expenses by using the same accounts/cards for both business and personal spending may cause troubles when it comes to the liability protection in case of a lawsuit. I'd suggest discussing this with a FL-licensed attorney.

Bottom line - technically the withdrawal is just writing yourself a check from the business account or moving money between your personal and business accounts. If you're a sole member - you need not more than that. Make sure the operating agreement explicitly empowers you to do that, of course. There are no tax consequences, but as I mentioned - there may be legal consequences.

Answer 3

What you're asking about is called a "distribution" when it comes to an LLC. It's basically you paying yourself some or all of the proceeds of the business, depending on how you're set up. You can pay yourself distributions on a regular schedule, say monthly, or you can do it at the end of the year.

Whatever you do in this regard, what you take out as distributions is reported on your personal income tax as taxable income. LLCs in the U.S. use pass-through taxation (unless you intentionally elect to have the LLC treated as a corporation for tax purposes, which some people do), so whatever the principals receive in distribution is personally taxable.

Keep in mind that you'll have to pay ALL of the taxes normally covered by an employer, such as self-employment tax (usually about 15%), social security tax, and so on. This is in addition to income tax, so remember that.

I hope this helps.

Good luck!

Answer 4

I would keep personal and business separate. LLC allows you to be tax ones maybe a little higher, but you are allowed to claim your deductions which hopefully will compensate and lower it.

Now, if you become a CORPORATION you will be tax double because corporations paid about 15% of taxes on profits less than $50,000 but, if you paid yourself, you would have to paid additional personal taxes on top of the already taxed money.

My recommendation is for you to have a business bank account just for your business. And your own personal bank account. Once you know how your business profits are, set yourself a salary goal number, a number you will be comfortable with and you will only withdraw ones a month. Let’s said you could paid yourself a salary of $4,000 each month, create a legal document stating the reason why would that amount will be paid to you, example “salary”, to make the transaction a legal one. If you invested money on the business to start the business, let’s say $50,000 and your businesses made $150,000 that year, you can withdraw as investments repayment “Bonus, Gift”, just make sure your books are clean and well documented. Even if you are paying yourself as an LLC, try to create documents, contracts, as if you were a big business, it may sound weird, but it is for your own protection and for the business protection.