Paying for Personal Expenses with Business Income

[Brandon Kessler]

Hi all - I have a few questions surrounding the idea of having an LLC or some other form of entity. For background I do not have one currently and only have one rental property that's a single family home but am trying to evaluate the use of one as I invest in more properties in the future.

That said, I see a lot of advice suggesting that you should never pull money out of your LLC. If all of your income is coming from assets under an LLC, how can you ever pay for personal expenses? And at what point and how are you able to use money generated from an LLC for these expenses? Do people typically have some assets not under an LLC to cover personal stuff and other as purely business growth? Thanks so much in advance for any thoughts or insights around this topic!

- Brandon

[Forest K.]

You can pull money into (via capital contributions) and out of (via distributions) an LLC at any time (generally speaking). There are no real tricks to this. You just keep your bank accounts separate and make notes in your bookkeeping. As you'll learn, LLCs are all about limiting liability. On the finance/money side, they are "passthrough," meaning you do need to keep your personal finances separate from the business side in order for your business (and thus liability) to be respected. But business profits will be taxed just like normal W2 income. So, if you want to spend your LLC money/funds/profits personally, you can (generally speaking) have your LLC write you a check noted as a "distribution." Of course, if you're trying to grow your business or wealth, you shouldn't pay yourself more than necessary and you should try to offset your profits with expenses inside the LLC (so that you're not paying more taxes than necessary).