Thursday, April 16, 2009

LLC & Return of Capital

Question : Do I have to pay taxes on my initial investment in an LLC if I want to now start receiving some of the money? Basically I paid in with taxed dollars so do I have to pay taxes again if I remove the intial investment? Brent, Missouri.
Response: The taxation of a multi-member LLC is very similar to that of a partnership. Members are taxed on their distributive share of LLC income each year regardless of actually distributions of cash or property from the LLC to the member. A member may withdraw cash from the LLC tax free up to the extent of his or her basis in the LLC. Distributions in excess of basis are generally taxable as capital gain. Link. Basis calculations are best left to the accountants, especially in the case of LLCs. Please check with your account for a determination of the tax effect of your anticipated distributions from the LLC.

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