Many LLC members and owners don’t realize they have certain benefits associated with being a a part of an LLC. If you're inside a bind, it is possible to borrow from an LLC. There are specific requirements and tax penalties may play a role, but much of that can be worked out should you follow certain steps. Before you decide to request a loan, you should consider what options you've and what risks, if any, may apply. Your financial stability, as well as that of the LLC, will depend on it.
Can Money Be Borrowed From an LLC?
The simple response is yes. The complicated answer is that borrowing money from an LLC is a process. You'll have to make an application for the borrowed funds just like you would at any other lending institution. The LLC members will need to approve the borrowed funds. When the loan qualifies it will have to become reported in put into minutes in the next LLC meeting. The LLC must draft a contract that may be legally enforced. The contract will need to include all of the details including the total amount loaned along with the agenda for repayment.
Are There Tax Implications for Borrowing From an LLC?
Borrowing money from an LLC comes with tax implications, particularly if the loan is written so that it appears like a taxable distribution. This will happen for a couple of reasons. The very first is that the amount you are trying to borrow is much more than just how much you've led to the LLC. This would result in a taxable gain and would be considered such by the IRS. When the loan is cancelled, it might also result in taxable gains and become taxed through the IRS. The eye should be paid on a monthly or quarterly basis.
Is It a Good Idea to Borrow From an LLC?
Borrowing out of your own LLC does have its advantages. There are other avenues you are able to choose. It’s a good idea to pay attention to each one. Business funding can be obtained and may really be a more sensible choice. Should you choose choose to borrow out of your business, it’s necessary that everything is documented properly. As long as all approvals are granted and things are recorded in the LLC’s minutes, everything is going smoothly.
What Are the Drawbacks?
Most of the drawbacks relate to the loan eventually being taxed. So long as you make certain everything is documented and approved by other LLC members, things should go smoothly. The bottom line is to keep the loan’s status so the money you obtain doesn’t come under a taxable distribution and qualify as taxable gains. If you're able to do this, there shouldn’t be any problems with the IRS. Borrowing money out of your LLC is a great decision if you have a plan in position to make certain that you and your business remain financially viable. Stick to the guidelines so that all of the requirements are met and you and your company will benefit over time.