Investing more into my LLC vs Loaning

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leo28
Posts: 48
Joined: Wed Nov 09, 2016 2:20 pm

Investing more into my LLC vs Loaning

Post by leo28 » Fri Sep 14, 2018 2:25 pm

Im here to ask if this is the right train of thought for putting some more cash into my company.

Its a partnership LLC and I don't want to own more of the company then my partner. The goal is to temporarily boost the company's cash pile without owning more of the company then the partner and to be able to take this extra cash out at a later date. In my head it seems that if I just add equity and later take it out the tax hit will be larger if it were a loan.

If I just loan it the money at a 5% interest rate for 1 year, I won't be paying any taxes on the loan when I take the principal back out in 1 year, correct? (I will only pay taxes on the interest accrued in the 12 months). Im assuming that this has a tax advantage for me then if I just add more equity and lets say increase my owners compensation or take it all out in one bulk in a year?

Am I on the right track with these thoughts? What are your suggestions?

Thanks!

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dm200
Posts: 18254
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Investing more into my LLC vs Loaning

Post by dm200 » Fri Sep 14, 2018 3:52 pm

leo28 wrote:
Fri Sep 14, 2018 2:25 pm
Im here to ask if this is the right train of thought for putting some more cash into my company.
Its a partnership LLC and I don't want to own more of the company then my partner. The goal is to temporarily boost the company's cash pile without owning more of the company then the partner and to be able to take this extra cash out at a later date. In my head it seems that if I just add equity and later take it out the tax hit will be larger if it were a loan.
If I just loan it the money at a 5% interest rate for 1 year, I won't be paying any taxes on the loan when I take the principal back out in 1 year, correct? (I will only pay taxes on the interest accrued in the 12 months). Im assuming that this has a tax advantage for me then if I just add more equity and lets say increase my owners compensation or take it all out in one bulk in a year?
Am I on the right track with these thoughts? What are your suggestions?
Thanks!
From some bitter experience in lending/advancing funds to an LLC where I was a very minor owner, when the LLC went bankrupt, I was considered an "insider" and the debt obligation to me went to the very bottom of the list of creditors.

riverguy
Posts: 430
Joined: Sun May 23, 2010 10:33 pm

Re: Investing more into my LLC vs Loaning

Post by riverguy » Fri Sep 14, 2018 4:24 pm

leo28 wrote:
Fri Sep 14, 2018 2:25 pm
Im here to ask if this is the right train of thought for putting some more cash into my company.

Its a partnership LLC and I don't want to own more of the company then my partner. The goal is to temporarily boost the company's cash pile without owning more of the company then the partner and to be able to take this extra cash out at a later date. In my head it seems that if I just add equity and later take it out the tax hit will be larger if it were a loan.

If I just loan it the money at a 5% interest rate for 1 year, I won't be paying any taxes on the loan when I take the principal back out in 1 year, correct? (I will only pay taxes on the interest accrued in the 12 months). Im assuming that this has a tax advantage for me then if I just add more equity and lets say increase my owners compensation or take it all out in one bulk in a year?

Am I on the right track with these thoughts? What are your suggestions?

Thanks!
Distributions aren’t taxed so what’s the issue? You keep track of everyone’s contributions with a capital account statement. You can contribute more than him and still own the same percentage.

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leo28
Posts: 48
Joined: Wed Nov 09, 2016 2:20 pm

Re: Investing more into my LLC vs Loaning

Post by leo28 » Fri Sep 14, 2018 6:36 pm

riverguy wrote:
Fri Sep 14, 2018 4:24 pm
leo28 wrote:
Fri Sep 14, 2018 2:25 pm
Im here to ask if this is the right train of thought for putting some more cash into my company.

Its a partnership LLC and I don't want to own more of the company then my partner. The goal is to temporarily boost the company's cash pile without owning more of the company then the partner and to be able to take this extra cash out at a later date. In my head it seems that if I just add equity and later take it out the tax hit will be larger if it were a loan.

If I just loan it the money at a 5% interest rate for 1 year, I won't be paying any taxes on the loan when I take the principal back out in 1 year, correct? (I will only pay taxes on the interest accrued in the 12 months). Im assuming that this has a tax advantage for me then if I just add more equity and lets say increase my owners compensation or take it all out in one bulk in a year?

Am I on the right track with these thoughts? What are your suggestions?

Thanks!
Distributions aren’t taxed so what’s the issue? You keep track of everyone’s contributions with a capital account statement. You can contribute more than him and still own the same percentage.
So if I contribute x amount today and after 1 year take this x amount out again its considered a return of my capital and not taxed?

riverguy
Posts: 430
Joined: Sun May 23, 2010 10:33 pm

Re: Investing more into my LLC vs Loaning

Post by riverguy » Fri Sep 14, 2018 8:08 pm

leo28 wrote:
Fri Sep 14, 2018 6:36 pm
riverguy wrote:
Fri Sep 14, 2018 4:24 pm
leo28 wrote:
Fri Sep 14, 2018 2:25 pm
Im here to ask if this is the right train of thought for putting some more cash into my company.

Its a partnership LLC and I don't want to own more of the company then my partner. The goal is to temporarily boost the company's cash pile without owning more of the company then the partner and to be able to take this extra cash out at a later date. In my head it seems that if I just add equity and later take it out the tax hit will be larger if it were a loan.

If I just loan it the money at a 5% interest rate for 1 year, I won't be paying any taxes on the loan when I take the principal back out in 1 year, correct? (I will only pay taxes on the interest accrued in the 12 months). Im assuming that this has a tax advantage for me then if I just add more equity and lets say increase my owners compensation or take it all out in one bulk in a year?

Am I on the right track with these thoughts? What are your suggestions?

Thanks!
Distributions aren’t taxed so what’s the issue? You keep track of everyone’s contributions with a capital account statement. You can contribute more than him and still own the same percentage.
So if I contribute x amount today and after 1 year take this x amount out again its considered a return of my capital and not taxed?
Correct. You will be taxed on any net income the partnership generates regardless of you taking lots of distributions or no distributions.

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