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When operating an LLC, how do you handle company expenses? Do you pay for them yourself and deduct them on your taxes (as it is a pass through tax entity), or do you pay for them from the company account? Are there any advantages or disadvantages either way? I assume the answer is to pay them from the company account as most people don't use personal checks for business. I know the standard advice is to ask an accountant, but mine is on vacation |
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Use the company account. I believe using a personal account makes things interesting for the accountant. Also I suspect there may be a double taxation there. Wait for the accountant to come back - if in doubt and the purchase must be made now, do it from the company account. |
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You want to pay with the company account. Using your personal account not only makes tracking things more difficult, but more importantly it can leads to "Piercing the corporate veil" which will render your liability protection useless. Either way though as long as you are in a pass through taxation mode, you'll be writing off the expenses against your taxes. Of course you can elect to change to a stand alone mode of the LLC were it is no longer a pass through entity, but instead taxed much like a C corporation. This can be beneficial depending as the corporate tax brackets can often be lower than your personal tax bracket. On the other hand, you would be paying double taxation on any money you draw as a salary in this case. |
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(This is for an S -corp - it is also a pass-through) I pay with company checks if I can, but if I use personal money I file expense reports and then reimburse myself. Just follow standard procedures of any other "real" company:
Pretty straightforward |
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I'd encourage you to look at just getting liability insurance and keeping taxes simple with the Schedule C; that way you can probably avoid the accountant costs as well. Once you start hiring full time; different ball game. |
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Generally, if you want creditors to recognize the existence of the LLC and have limited liability protection, you should always pay from the company account. Failure to do so lets some creditors sue you personally instead of the LLC and go after your personal assets. Moreover, if you use your personal account for expenses and take them as a deduction on your tax return, the IRS will disallow these expenses even though they were business expenses because they were made from your personal account (personal expenses are not deductible). Therefore, as a general rule it's always a good idea to pay expenses from the company account. Note: This is not legal advice and does not give rise to an attorney-client relationship. |
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