[wewmt]

I have a small sideline business that earns about 5k a year. So far I've just keep receipts, and filed tax returns on it. I don't take a salary from the business, but have used its earnings to pay for expenses, like cell phone, fuel, tools, tax return preparation, insurance, etc...
This business is starting to profit and I don't want a payroll, but I would like to let it pay me back for approximately 5,000 for equipment I purchased to start the business. Do I need books to prove the company is paying me back and not paying sallary? Can I create them in retrospect?

[AtlantaTaxExpert]

I assume that you are reporting the income on Schedule C as a sole proprietorship.

If so, then you can do a "draw" on your business account to reimburse yourself for the re-payment of the $5,000 in expenses that you "lent" to the company. You just need to reflect that the original expense as a loan and this draw as repayment of that loan.

You can make these entries after the fact to accurately reflect what they are.

[wewmt]

Thanks Expert!
Unfortunately, I've allowed my tax preparer to do the filing, and I've neglected to understand anything he does. I'll check las years return and see what it is filed with.

It's an LLC between my wife and me. Does that matter?

[AtlantaTaxExpert]

Yes, because then the LLC would be considered a partnership and maybe the partnership return (Form 1065) would need to be amended, with an amended Schedule K-1 and a amendment of your personal return.

Ask the tax preparer if he reflected the $5,000 as a partnership expense that was "passed through" to you on the Schedule K-1. If so, then the expense was effectively deducted off your tax return, and any re-payment would have to be reflected as income to you.

[wewmt]

Well, after reviewing 09 returns, I'm not showing a profit yet. Mostly due to equipment depreation and expesnes.

Guess I need to work a little harder.

[AtlantaTaxExpert]

Do not feel alone.

A LOT of small companies are NOT showing profits.