Im starting a LLC, how do I literally distribute profits? Just write a check to member or...?

...is there paperwork/IRS form?

I'm not sure how to pay the member. Just write a check or do I need to file paperwork as a trial and or use a form? Please advise!!!

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  • Anonymous
    9 years ago
    Best Answer

    Single member LLCs are taxed as sole proprietorships by default. The LLC can elect to be taxed as a corporation however. If taxed as a sole proprietorship, just write the check to the member. Remember that it is not a deduction. If taxed as a corporation, either write a payroll check, declare a dividend or designate the payment as return of capital. Report payrolls on Forms 941, 940, W-2 and the applicable state forms. Report dividends on Form 1099-DIV and report returns of capital on Form 1099-B. If the corporation is further classified as an "S" corporation, any profits not distributed in cash or property are reported on Schedule K-1. Note that W-2s, 1099-DIVs and 1099-Bs must be furnished to the member by 1/31/08 and filed with the IRS by 2/28/08. Schedule K-1 must be furnished to the member by 4/15/08 unless an extension is filed for Form 1120-S which extends the due date to 9/15/08.

    Multiple member LLCs are taxed as partnerships by default. Like the single member LLC they can elect to be taxed as a corporation (with profits distributed as described above). If taxed as a partnership, determine if the profit is a "guaranteed payment" which is classified differently on the tax return (and Schedule K-1) or a general partnership distribution. If a general distribution, report it as a withdrawal of capital on Schedule K-1. Members of a partnership are not furnished W-2 forms.

    For additional information, visit www.irs.gov Keyword: LLC or see http://www.irs.gov/faqs/faq-kw105.html

    Pursuant to Internal Revenue Service guidance, be advised that any federal tax advice in this communication, including any attachments or enclosures, was not intended or written to be used, and it cannot be used, by any person or entity for the purpose of avoiding penalties imposed under the Internal Revenue Code.

  • 9 years ago

    Is this a 2 or more person LLC (a pass-thru) or a single person (disregarded?)

    Tax (federal -- don't know each state's laws)

    Pass-thru -- From a tax perspective, there is no form you need to file with the IRS, although remember that you'll need to file a form 1065 for the LLC each year reporting on total income/loss.

    Single person -- Nothing. Its disregarded for federal income tax

    Legal

    You should check your operating or LLC agreement (not the formation certificate). If its silent or you don't have one (if you don't have one, consider getting one in place -- not having one is a bad idea) then there is no per se requirement but in the interest of avoiding future confusion or doubt I'd have whoever runs the LLC (the members if its member managed, or the manager) sign a document that explains the date of distribution, the amount to its members, the reason for it if you'd like (tax distribution, annual profit distribution, etc.) and also keep copies of the check and the cashed check once it clears the LLC's bank account. Note this in the absence of specific information since in some cases if you were in a fight you'd want to document less or more.

    BTW, if you want to see samples of LLC written actions, I sell them on scribd as corporaider. However, you don't have to use those. As I stated up top under legal documents -- if your LLC is silent as to required documents there is no per se legal requirement -- but having something is good so that (1) you can provide documents to any 3rd parties or professionals (lets say your accountants) in the future and (2) it avoids any future fights with members who forget/claim you never made the distribution or authorized it.

    PS I also offer LLC agreements for sale on scribd. Not the certificate of formation but the operating agreement/LLC agreement that sets forth the governing mechanism. Mine don't have specific provisions on documenting distributions, though. Again, buy them or not (its just a lark for me) but if you don't have one, you really ought to -- get it from somewhere.

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