August 31, 2016

Paying LLC Taxes

I just formed my LLC in September of this year. I have yet to make a profit due to still trying to purchase necessary equipment, etc. Next year, if I have still yet to make a profit, what do I do in terms of filing my taxes for the LLC?   Also I you don’t make a profit from your LLC, do you pay taxes on the money you put in the business?

Answer

I’m assuming that your LLC is not taxed as a corporation.

In that case, you are going to report a loss for your LLC for this year, and take a deduction on your 1040.

Next year, if you make a profit, that profit will flow through to your 1040 and increase your taxable income.

My suggestion is that you:

1. Keep track of all your business revenue and expenses–this includes keeping all your receipts.

2. Enter this data into Quickbooks.

3. Use tax preparation software like TurboTax or hire a CPA

 

If your LLC has a loss (revenues – expenses = a negative number), then you not only don’t have to pay taxes, but you get a deduction for your LLC’s losses on your personal tax return.

Money you put into the LLC in the form of a capital contribution or loan (e.g. the startup money you put in the LLC) is not “revenue” for the purposes of the calculation above.

If the LLC pays interest to you (or anyone else) on money lent to it, then that interest would be deductible as a business expense to the LLC. The recipient of that interest would report it as interest income.

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