Single Member LLC and Profit Distribution

August 01, 2019
Single Member LLC and Profit Distribution
single-person LLC

Have you ever thought of how you can take distributions out of a Limited Liability Company? Well, it’s not as difficult as it may sound.

The tax election that the company makes with the Internal Revenue Service (IRS) defines how you take profits out of an LLC. The benefits distributed are not salaries. Instead, the salary paid to reimburse an individual for helping the company is deducted from the business revenue. Then, the remaining amount is your profit.

Managing Single Member LLC Distributions

Owning a single-member LLC is the most lucrative form of business if you’re worried about taxation. This is because a single-member LLC is not required to file a separate federal tax return. When you prepare your taxes, make sure that you report all the expenses and business income on Schedule C of the IRS form. This is considered self-employment income.

The income will still appear in your income taxes even if the LLC decides to retain the amount for reinvestment or cash-flow purposes. This usually results to ” phantom revenue,” the money that an individual never receives but is still taxable.

However, LLC agreements try to settle this issue by asking the LLC to divide enough amount to its member to cater for that that was not received but was still taxed.

All that is left after you’ve paid all your taxes is your profit, and you can withdraw it at your discretion.

Note that you’re held responsible for all the debts and obligations of the company as a single-member LLC owner. This is due to veil-piercing conditions. Therefore, you should take adequate precautions as an LLC owner.

Learn More About Single Member LLC and Profit Distribution

Many laws and regulations govern the LLC distributions. Thus, it’s wise to get advice from an accountant or an attorney. If you need any assistance with your LLC’s profit distribution, please feel free to contact us.