Ask Me Help Desk - LLC Distributions

I am a member of a 4-member LLC which is taxed as an S-Corp. Each member has a 25% interest. Are there any rules about when distributions should be made and/or how much should be distributed? For example, if no cash is distributed throughout the year, is there a requirement to make a distribution at the end of the year? If so, are we supposed to distribute the amount of income earned through the year?

Quote:

Originally Posted by NatarooToo

I am a member of a 4-member LLC which is taxed as an S-Corp. Each member has a 25% interest. Are there any rules about when distributions should be made and/or how much should be distributed? For example, if no cash is distributed throughout the year, is there a requirement to make a distribution at the end of the year? If so, are we supposed to distribute the amount of income earned through the year?

Distributions should be made as. You are taxed on the net income. If distribution exceeds income, balance is a reduction and return of capital (non taxable).

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Originally Posted by delite

distributions should be made as. you are taxed on the net income. if distribution exceeds income, balance is a reduction and return of capital (non taxable).

Thank you for your quick response, however, this does not answer my original questions. I understand how the accounting works; I just don't know if there are any rules governing if and when distributions must be made. The members are leaning towards leaving the cash in the company for some capital expenditures but don't know if this is the correct thing to do. Perhaps this is a question for legal?

You shouldn't have to distribute anything if you don't want. Companies leave money in all the time for all types of reasons, including capital expenditures. That's your choice. If there is something in your agreement about distributions, then you need to be following that. But there otherwise isn't anything saying that any distribution has to be made at all if you want to keep the money in there.

The reason I didn't initially answer is because I'm not too familiar with LLC's. That seems to be the latest new-fangled thing to do. For the past 5 years, I've only been teaching and have not been doing this in real life. I had the impression you were also concerned with how it has to be distributed (i.e. in what proportion), and that I wasn't sure about. That too should be in your agreement. (If it's not in an agreement, it might be by proportion of investment, or equally. Like I said, not too familiar with LLC's.)

If your taxes are like an S Corp, you do realize, however, that even if you don't distribute anything, you still have to pay tax on it. Unlike a C Corp where the company gets taxed and then the dividends get taxed again, an S Corp is flow-through income and it's the income that is taxed on a personal level, when earned, and not when it's distributed.

Quote:

Originally Posted by morgaine300

You shouldn't have to distribute anything if you don't want. Companies leave money in all the time for all types of reasons, including capital expenditures. That's your choice. If there is something in your agreement about distributions, then you need to be following that. But there otherwise isn't anything saying that any distribution has to be made at all if you want to keep the money in there.

The reason I didn't initially answer is because I'm not too familiar with LLC's. That seems to be the latest new-fangled thing to do. For the past 5 years, I've only been teaching and have not been doing this in real life. I had the impression you were also concerned with how it has to be distributed (i.e. in what proportion), and that I wasn't sure about. That too should be in your agreement. (If it's not in an agreement, it might be by proportion of investment, or equally. Like I said, not too familiar with LLC's.)

If your taxes are like an S Corp, you do realize, however, that even if you don't distribute anything, you still have to pay tax on it. Unlike a C Corp where the company gets taxed and then the dividends get taxed again, an S Corp is flow-through income and it's the income that is taxed on a personal level, when earned, and not when it's distributed.

Thank you very much. I believe you've answered my questions!