What are the tax implications of lending to my own LLC?
"It'll be just like any other loan you make, on your end, and receive, on your LLC's end. You pay taxes on the interest received, and your LLC can deduct the interest paid.    Do make sure you set it up properly, however:  If you want to loan money to your business, you should have your   attorney draw up paperwork to define the terms of the loan, including   repayment and consequences for non-repayment of the loan. It should be   clear that the loan is a binding obligation on the part of the   company. As a recent Tax Court case notes, the absence of such   paperwork negates the loan. For tax purposes, the loan is an ""arms   length"" transaction, being treated like any other debt.   From: http://biztaxlaw.about.com/od/financingyourstartup/f/investinbusiness.htm" It looks like you'd just be charging yourself interest and paying yourself back, because it's a pass-through entity, as I'm sure you know.  (This assumes you're the only member of the LLC.) It all depends on how much money you want inside the protective cover of the LLC, and for how long.  It doesn't seem to make much difference how you get the cash in or out, or how complicated or easy you make it for yourself.
"You don't specify which country you are in, so my answers are more from a best practice view than a legal view.. I don't intend on using it for personal use, but I mean it's just as possible. This is a dangerous proposition.. You shouldn't co-mingle business expenses with personal expenses.  If there is a chance this will happen, then stop, make it so that it won't happen. The big danger is in being able to have traceability between what you are doing for the business, and what you are doing for yourself.  If you are using this as a ""staging"" account for investments, etc., are those investments for yourself?  Or for the business?  Is tax treatment on capital gains and/or dividends the same for personal and business in your jurisdiction?  If you buy a widget, is the widget an expense against business income?  Or is it an out of pocket expense for personal consumption?  The former reduces your taxable income, the latter does not. I don't see the benefit of a real business account because those have features specific to maybe corporations, LLC, and etc. -- nothing beneficial to a sole proprietor who has no reports/employees. The real benefit is that there is a clear delineation between business income/expenses and personal income/expenses. This account can also accept money and hold it from business transactions/sales, and possibly transfer some to the personal account if there's no need for reinvesting said amount/percentage. What you are looking for is a commonly called a current account, because it is used for current expenses.  If you are moving money out of the account to your personal account, that speaks to paying yourself, which has other implications as well. The safest/cleanest way to do this is to: While this may sound like overkill, it is the only way to guarantee that income/expenses are allocated to the correct entity (i.e. you, or your business). From a Canadian standpoint:" "They are basically asking for the name of the legal entity that they should write on the check. You, as a person, are a legal entity, and so you can have them pay you directly, by name. This is in effect a ""sole proprietorship"" arrangement and it is the situation of most independent contractors; you're working for yourself, and you get all the money, but you also have all the responsibility. You can also set up a legal alias, or a ""Doing Business As"" (DBA) name. The only thing that changes versus using your own name is... well... that you aren't using your own name, to be honest. You pay some trivial fee for the paperwork to the county clerk or other office of record, and you're now not only John Doe, you're ""Zolani Enterprises"", and your business checks can be written out to that name and the bank (who will want a copy of the DBA paperwork to file when you set the name up as a payable entity on the account) will cash them for you. An LLC, since it was mentioned, is a ""Limited Liability Company"". It is a legal entity, incorporeal, that is your ""avatar"" in the business world. It, not you, is the entity that primarily faces anyone else in that world. You become, for legal purposes, an agent of that company, authorized to make decisions on its behalf. You can do all the same things, make all the same money, but if things go pear-shaped, the company is the one liable, not you. Sounds great, right? Well, there's a downside, and that's taxes and the increased complexity thereof. Depending on the exact structure of the company, the IRS will treat the LLC either as a corporation, a partnership, or as a ""disregarded entity"". Most one-man LLCs are typically ""disregarded"", meaning that for tax purposes, all the money the company makes is treated as if it were made by you as a sole proprietor, as in the above cases (and with the associated increased FICA and lack of tax deductions that an ""employee"" would get). Nothing can be ""retained"" by the company, because as far as the IRS is concerned it doesn't exist, so whether the money from the profits of the company actually made it into your personal checking account or not, it has to be reported by you on the Schedule C. You can elect, if you wish, to have the LLC treated as a corporation; this allows the corporation to retain earnings (and thus to ""own"" liquid assets like cash, as opposed to only fixed assets like land, cars etc). It also allows you to be an ""employee"" of your own company, and pay yourself a true ""salary"", with all the applicable tax rules including pre-tax healthcare, employer-paid FICA, etc. However, the downside here is that some money is subject to double taxation; any monies ""retained"" by the company, or paid out to members as ""dividends"", is ""profit"" of the company for which the company is taxed at the corporate rate. Then, the money from that dividend you receive from the company is taxed again at the capital gains rate on your own 1040 return. This also means that you have to file taxes twice; once for the corporation, once for you as the individual. You can't, of course, have it both ways with an LLC; you can't pay yourself a true ""salary"" and get the associated tax breaks, then receive leftover profits as a ""distribution"" and avoid double taxation. It takes multiple ""members"" (owners) to have the LLC treated like a partnership, and there are specific types of LLCs set up to handle investments, where some of what I've said above doesn't apply. I won't get into that because the question inferred a single-owner situation, but the tax rules in these additional situations are again different." "Basically, yes. Don't use your business account for personal spending because it may invalidate your limited liability protection. Transfer a chunk of money to your personal account, write it down in your books as ""distribution"" (or something similar), and use it in whatever way you want from your personal account. The IRS doesn't care per se, but mixing personal and business expenses will cause troubles if you're audited because you'll have problems distinguishing one from another. You should be using some accounting software to make sure you track your expenses and distributions correctly. It will make it easier for you to prepare reports for yourself and your tax preparer, and also track distributions and expenses. I suggest GnuCash, I find it highly effective for a small business with not so many transactions (if you have a lot of transactions, then maybe QuickBooks would be more appropriate)." "TL;DR: Get a tax adviser (EA/CPA licensed in your State) for tax issues, and a lawyer for the Operating Agreement, labor law and contract related issues. Some things are not suitable for DIY unless you know exactly what you're doing. We both do freelance work currently just through our personal names.   What kind of taxes are we looking into paying into the business   (besides setup of everything) compared to being a self proprietor?   (I'm seeing that the general answer is no, as long as income is <200k,   but not certain). Unless you decide to have your LLC taxed as a corporation, there's no change in taxes. LLC, by default, is a pass-through entity and all income will flow to your respective tax returns. From tax perspective, the LLC will be treated as a partnership. It will file form 1065 to report its income, and allocate the income to the members/partners on schedules K-1 which will be given to you. You'll use the numbers on the K-1 to transfer income allocated to you to your tax returns and pay taxes on that. Being out of state, will she incur more taxes from the money being now   filtered through the business? Your employee couldn't care less about your tax problems. She will continue receiving the same salary whether you are a sole proprietor or a LLC, or Corporatoin. What kind of forms are we looking into needing/providing when   switching to a LLC from freelance work? Normally we just get 1099's,   what would that be now? Your contract counterparts couldn't care less about your tax problems. Unless you are a corporation, people who pay you more than $600 a year must file a 1099. Since you'll be a partnership, you'll need to provide the partnership EIN instead of your own SSN, but that's the only difference. Are LLC's required to pay taxes 4 times per year? We would definitely   get an accountant for things, but being as this is side work, there   will be times where we choose to not take on clients, which could   cause multiple months of no income. Obviously we would save for when   we need to pay taxes, but is there a magic number that says ""you must   now pay four times per year"". Unless you choose to tax your LLC as a corporation, LLC will pay no taxes. You will need to make sure you have enough withholding to cover for the additional income, or pay the quarterly estimates. The magic number is $1000. If your withholding+estimates is $1000 less than what your tax liability is, you'll be penalized, unless the total withholding+estimates is more than 100% of your prior year tax liability (or 110%, depending on the amounts). The LLC would be 50% 50%, but that work would not always be that. We   will be taking on smaller project through the company, so there will   be times where one of us could potentially be making more money. Are   we setting ourselves up for disaster if one is payed more than the   other while still having equal ownership? Partnerships can be very flexible, and equity split doesn't have to be the same as income, loss or assets split. But, you'll need to have a lawyer draft your operational agreement which will define all these splits and who gets how much in what case. Make sure to cover as much as possible in that agreement in order to avoid problems later." That may become complicated depending on the State laws. In some States (California for example), LLCs are taxed on gross receipts, so you'll be paying taxes on paying money to yourself. In other States this would be a no-op since the LLC is disregarded. So you need to check your State law. I assume the LLC is not taxed as a corporation since that would be really stupid of course, but if it is then it adds the complexity of the Federal taxes on top as well (corporate entity will pay taxes on your rent, and you'll pay taxes on your dividends to get the money back). The best option would be to take that property out of the LLC (since there's no point in it anyway, if you're the tenant). As a sole proprietor, the tax liability of your business is calculated based on combining your business income with your personal income together.  It is good advice to keep all personal and business financial matters separate. This makes it easier to prove to the IRS that all your business expenses are actually business related. In this case however, the two items [tax payment for personal income vs tax payment for business income] are inseparable. What you can do, however, for your own personal records, is calculate how much of your tax payment relates to your business. I wouldn't get complicated about this; I would simply take the net income of your business as a % of your taxable income, and multiply that against your tax payment. ie: if your business net income is $10,000, and your total taxable income is $50,000, and you paid $6,000 in taxes, I would record that 20% of the $6k was related to business income. If you have a separate bank account for your sole proprietorship, you could make a transfer to your personal account of $1,200, and then make the $6k payment from your personal account. Remember that tax payments for either your sole proprietorship and your personal income will be treated the same: federal tax payments are not tax deductible, and state tax payments are tax deductible, whether they were paid for your sole proprietorship or the rest of your personal income. So even though this method is simplistic [for example, it doesn't factor in that different investment income types earned personally will have a lower rate than your sole proprietorship income], any difference wouldn't have an impact on any future tax liability. This would only be for your own personal record keeping. Disclaimer: I am not an attorney, and I have not 100% researched the law. Take any advise from an online forum with a grain of salt. Please consult an attorney, tax specialist, or the IRS directly for any concrete answers. AFAIK there isn't anything that would prevent you from starting a business. Simply owing back taxes shouldn't make a difference on how you make money, whether that is working for yourself or someone else. All the IRS is concerned about at this point is that you still owe them. When going through the process of forming an LLC a couple of years back, I don't recall any personal tax information being brought up except when we were discussing possible loan options. Regarding loan options, one important issue you may come into is if the IRS has filed a lien against you: A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets. A lien will exist on your credit report for 7 years after it is released: The IRS releases your lien within 30 days after you have paid your tax debt. With a lien, it will be very difficult to get a loan or other financing for your small business. If this ends up being the case, you can try to get a discharge or subordination on specific property that would allow lenders a claim on your property ahead of the IRS. Otherwise, you may find yourself relying solely on what money you currently have. A big point is the IRS's threshold on filing a lien is $10,000: The Fresh Start Initiative increased the IRS Notice of Federal Tax Lien filing threshold from $5,000 to $10,000; however, Notices of Federal Tax Liens may still be filed on amounts less than $10,000 when circumstances warrant. Since you currently owe ~$8,000 over the past 3 years, it is possible that adding another year in back taxes will cause the IRS to file a lien if they have not yet already done so. So it may be something to keep an eye on if you do plan on taking out a loan for your business. Through your question and then clarification through the comments, it looks like you have a U.S. LLC with at least two members.  If you did not elect some other tax treatment, your LLC will be treated as a partnership by the IRS.  The partnership should file a tax return on Form 1065.  Then each partner will get a Schedule K-1 from the partnership, which the partner should use to include their respective shares of the partnership income and expenses on their personal Forms 1040. You can also elect to be taxed as an S-Corp or a C-Corp instead of a partnership, but that requires you to file a form explicitly making such election.  If you go S-Corp, then you will file a different form for the company, but the procedure is roughly the same - Income gets passed through to the owners via a Schedule K-1.  If you go C-Corp, then the owners will pay no tax on their own Form 1040, but the C-Corp itself will pay income tax. As far as whether you should try to spend the money as business expense to avoid paying extra tax - That's highly dependent on your specific situation.  I'd think you'd want to get tailored advice for that. No, even businesses pay taxes quarterly.  So if you formed Nathan, LLC, or otherwise became self employed, you'd still have to file quarterly estimates and make tax payments.  This would cause taxes to be a much more high touch part of your life. However, you should ensure that you're claiming the proper exemptions etc to avoid excessive withholding. "Assuming you are talking about an LLC in the United States, there are no tax repercussions on the LLC itself, because LLCs use pass-through taxation in the U.S., meaning that the LLC does not pay taxes. Whatever you take out of the LLC in the form of distributions goes onto your personal income tax as ordinary income, and you pay personal income tax on it.  See this link on the subject from the Nolo.com web site: Tax treatment of an LLC from the Nolo.com web site Repayment of your loan by the LLC would just be another business expense for the business itself.  I guess the question would then turn on what your personal tax repercussion would be for payments received from the LLC on the loan.  I would guess (and I emphasize ""guess"") that you would pay tax on any interest gain from the loan payments, which makes the assumption you made the loan to include interest.  If not (in other words, if you made this an interest-free loan) then it would be considered a wash for tax purposes and you would have no tax liability for yourself. To reiterate, the LLC (if it is a U.S.. entity) does not pay taxes.  Taxation of LLC income is based on whatever distributions the principals take out of it, which is then claimed as taxable personal income. My apologies to littleadv for not making my prior answer (I deleted it) more clear about my answer assuming you were speaking of a U.S.-chartered LLC. I hope this helps. Good luck!" Would I be taxed at my personal income tax rate upon withdrawal of the   funds for this loan from my professionally managed, balanced 401k (not   Roth funds)? Yes. This is a regular distribution. Why wouldn't you be taxed? What's gifting has to do with anything? If taxable, this would move me to the next higher tax bracket. Depending on your other income - it may, or may not. Whether or not taxable when pulling funds out of the investment   account, when I'm repaid, do I owe Federal tax only on the interest   income portion of repayment funds or on the lump sum & interest   received (all of which which would return to my retirement account in   lump)? Only interest. And you will not return it to your retirement account. Not in a lump and not in installments and not in any other way. As a new (very!) small business, the IRS has lots of advice and information for you. Start at https://www.irs.gov/businesses/small-businesses-self-employed and be sure you have several pots of coffee or other appropriate aid against somnolence.  By default a single-member LLC is 'disregarded' for tax purposes (at least for Federal, and generally states follow Federal although I don't know Mass. specifically), although it does have other effects. If you go this route you simply include the business income and expenses on Schedule C as part of your individual return on 1040, and the net SE income is included along with your other income (if any) in computing your tax. TurboTax or similar software should handle this for you, although you may need a premium version that costs a little more.  You can 'elect' to have the LLC taxed as a corporation by filing form 8832, see https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc . In principle you are supposed to do this when the entity is 'formed', but in practice AIUI if you do it by the end of the year they won't care at all, and if you do it after the end of the year but before or with your first affected return you qualify for automatic 'relief'. However, deciding how to divide the business income/profits into 'reasonable pay' to yourself versus 'dividends' is more complicated, and filling out corporation tax returns in addition to your individual return (which is still required) is more work, in addition to the work and cost of filing and reporting the LLC itself to your state of choice. Unless/until you make something like $50k-100k a year this probably isn't worth it. 1099 Reporting. Stripe qualifies as a 'payment network' and under a recent law payment networks must annually report to IRS (and copy to you) on form 1099-K if your account exceeds certain thresholds; see https://support.stripe.com/questions/will-i-receive-a-1099-k-and-what-do-i-do-with-it  . Note you are still legally required to report and pay tax on your SE income even if you aren't covered by 1099-K (or other) reporting. Self-employment tax. As a self-employed person (if the LLC is disregarded) you have to pay 'SE' tax that is effectively equivalent to the 'FICA' taxes that would be paid by your employer and you as an employee combined. This is 12.4% for Social Security unless/until your total earned income exceeds a cap (for 2017 $127,200, adjusted yearly for inflation), and 2.9% for Medicare with no limit (plus 'Additional Medicare' tax if you exceed a higher threshold and it isn't 'repealed and replaced'). If the LLC elects corporation status it has to pay you reasonable wages for your services, and withhold+pay FICA on those wages like any other employer. Estimated payments. You are required to pay most of your individual income tax, and SE tax if applicable, during the year (generally 90% of your tax or your tax minus $1,000 whichever is less). Most wage-earners don't notice this because it happens automatically through payroll withholding, but as self-employed you are responsible for making sufficient and timely estimated payments, and will owe a penalty if you don't. However, since this is your first year you may have a 'safe harbor'; if you also have income from an employer (reported on W-2, with withholding) and that withholding is sufficent to pay last year's tax, then you are exempt from the 'underpayment' penalty for this year.  If you elect corporation status then the corporation (which is really just you) must always make timely payments of withheld amounts, according to one of several different schedules that may apply depending on the amounts; I believe it also must make estimated payments for its own liability, if any, but I'm not familiar with that part. You will have to write it off as an offset of capital gains or as bad debt against personal income, limited to $3k/ yr. Write off 3k this year, 2k next. Here's the tax code, you'll need to file a form 8949, link below. https://www.irs.gov/taxtopics/tc450/tc453 So, this requires that it is a loan, acknowledged by both you and the borrower, with terms of repayment and stated interest, as well as wording for late payments and time for delinquency.  The loan document doesn't have to be fancy, but it must show a reasonable intention of repayment to distinguish it from a gift.  Then send out a 1099c for cancellation of debt. This is a starting point, it's a good idea to run everything by your tax processional to make sure you're meeting the requirements for bad debt with your contact and payment communication. "Do you mean how much income tax the IRS will assess? Loans are not income, therefore they do not incur income tax. So as long as the money isn't being given, but being loaned, you don't have to pay income tax on it. And just in case you think there's a loophole of ""Instead of paying my workers, I'll just 'loan' them their paychecks, and then forgive the debt at the end of the year"", no, the IRS does consider loan forgiveness to be a form of income. So you need to look at whether the loan is going to you, or whether your business is a separate legal entity that is getting the money. If it's a capital contribution, then you are selling a stake in your company. Or, more precisely, as long as the money is going into the business, the company is selling a stake in itself. In that case, there generally isn't tax owed. Here's a Quara question that touches on this: https://www.quora.com/Is-money-raised-through-investors-taxed" I think you're misunderstanding how tax brackets work. If you make $1 more and that bumps you into a higher bracket, only THAT particular dollar will be taxed at the higher tax bracket rate... Not your entire income.  Short term capital gains are treated as income.  Long term capital gains have a special tax rate currently.