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Thread: New Small LLC - Tax and other questions

  1. #1

    Default New Small LLC - Tax and other questions

    Hello Ladies and Gents!

    This may get deeper than usual for you guys, but maybe not, i'm new to this, but wanted to drop everyone a warning. We have spoken to friends who do their own accounting, and to one local accountant, but he wanted a crazy amount of up front money to even point us in the right direction.

    My name is Marc and my brother and I have started an IT consulting LLC in Wyoming. We are both listed as Organizers.

    That being said, we have always just done work via our individual socials, but never as an LLC, so I have some questions on how best to handle some things.

    1) Does paying ourselves mileage lower the LLC income? Is that something that we have to then report as income individually? What documentation besides something showing the miles and dates/locations do we need for this payout? Can it be done in a lump at end of yer? Pitfalls?

    2) We haven't made much in the year, sub 10k, is it best to file as an LLC or is a corp better for a 2 person low income year business?

    3) Dining out for business purposes: I have receipts for this, if we reimburse ourselves how different is it from the first question if at all?

    4) If my brother and I work different projects and different amounts of hours, what is the best way to pay ourselves in the end? We currently don't have any business split listed with out LLC, so I assume that means 50/50.

    Hope that's not too layman. And thank you ahead of time for your thoughts and suggestions.

  2. #2
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    tallen's Avatar

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    1.) Reimbursing yourselves for business travel represents an expense to the business that does reduce its income. However the reimbursement to you would not be considered income to you. Prepare an expense report form that you each fill out that records each trip. A logbook in your glove box, or use of a mileage tracking app on your smartphone, would be good practice. You can reimburse yourselves from the company coffers however often and whenever it is convenient, just keep good records!

    2.) Since your LLC involves more than one person, I think you would have to file a partnership return if you have not elected s-corp treatment. Regardless, both are pass-through entities, so the tax repercussions would likely be similar.

    3.) For business meals, you need to keep records not just of the expense, but also who was included in the meal and what the business topic of discussion was. I write everybody's name right on the receipt along with a very short summary (e.g. the project title) of what was discussed.

    4.) If you elect s-corporation tax treatment, I suspect that you would be required to treat yourselves as employees and pay yourselves wages through a regular payroll process. If you go the partnership route, paying yourselves wages based on hours worked would probably be an option, but not necessarily required. Such wages would be considered a business expense, deducted from your revenues before determining any profit. Such profit would have to be distributed among the partners in accordance with the partnership agreement... (so I guess that is a slight difference in tax repercussions...)

    Disclaimer: I am not an accountant

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