Re: LLC Disbursements to Members?

Question

I have a question about profit disbursements to members of an LLC. We have it set up so that we will each get a weekly disbursement for particular duties performed and then would like to do a jumbo disbursement at the end of the physical year to each memeber.

I have been doing some reading on profit and loss disbursement and I am a little confused. It says we can do a "Pass-Through" taxation where the profits and losses are passed onto the members.

What I need to know is:
1) Can we withhold income taxes,etc., from each disburement and pay that quarterly? Or, is each member responsible for doing that themselves?
2) The rest of the money in the account that is profit and operating revenue, do we have to pay quarterly on that too or can that wait until the end of the year? If we have to pay out on it quarterly how is that done?
3) How is the profits & losses split up between the two members on their individual taxes? I don't understand how that work.

Thanks in advance!

I heard that at the end of the year the account should be zero, that all net profits must be distributed. What about carrying over funds for operating expenses to start the new year? Do we start the new year with member contributions to the LLC ensure funds for operating in the beginning of the new year? Because, that money will have already had taxes paid on it so if it is done as member contributions won't that show as income into the LLC and subject to tax again?

Answer 1

if you have set up an LLC, you will need to file partnership tax returns for this entity. when your accountant files the tax return, each member gets a form K-1, where their share of income or loss gets reported. this information then gets reported on each members' individual tax return. this is what as meant as "pass-through". the LLC itself does not pay federal & state taxes, instead each member does that.

1. the LLC can withhold taxes from the disbursements and pay that quarterly, or you can distribute the disbursements and have each member be responsible for doing that themselves. your accountant can prepare a "projection" to estimate income and approximate how much tax is due quarterly. also note that taxes are due 1/15, 4/15, 6/15 and 9/15 for individuals paying in quarterly estimated taxes. (not a calendar quarter)

2. you do not do anything with the money in the bank account. your income or loss from the LLC will get reported on its partnership tax returns at the end of the year. if the LLC has a year end of 12/31/06, your partnership tax return is due by 4/15/07, unless it goes on extension. the partnership tax return must be completed before you can prepare your individual tax returns. all tax due should be paid in by 4/15, whether or not a tax return goes on extension.

3. im assuming youre keeping good records and have some sort of software for this (i.e. Quickbooks) this will enable you and your accountant to see how much the profit or loss is at the end of the year. like i mentioned earlier, this info will be used to prepare the partnership tax returns (federal form 1065). each member will get your own K-1 which will show your 50% of everything. then you will report this K-1 on your individual 1040 at tax time.

hope this helps better your understanding. your accountant can do all of this for you.

Answer 2

You need an accountant handling this toots. Here are the basics....the profits/losses are passed through to the members at the end of the year. The entity then is at a zero. The profits/losses are claimed as either income or losses on the individual tax returns that are filed. Personal income tax rates are less than business tax rates. Does that makes sense now? When you do the disbursements really doesn't matter. The taxes due on each individuals income is not due before you have actually filed two returns so that you can properly estimate your tax liability. You file this Jan or Feb and pay any tax due. Next year you do the same thing, then you look at the amount of tax liability you can see how much are you required to pay in quarterly taxes. You don't have to worry about it the first year!

Answer 3

As member of an LLC you may not be treated as an employee. As such there is no way to withhold taxes on any distributions to a member.
You are required to pay quarterly estimated tax payments on your share of the net income of the LLC if it is distributed to you or not. Generally, an LLC might pay out the weekly distribution and then pay out an amount each time a quarterly estimated tax payment is due is an amount sufficient to help you pay the tax payment.
The profits after the weekly payments are split based on eack members percentage of ownership of the entity.

Answer 4

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