Owner Deposits & Withdrawals from Single Member LLC

[Chris Heeren]

I currently have a Single Member LLC's in Wisconsin that holds rental property. In 2016 I started depositing funds into the LLC from my personal account to help buy properties all cash, after I refinance them I would then pull that money back out and put into my personal account (to pay of loans, HELOC's etc where I borrowed the money in the first place. Since this is only a single member LLC, could this be considered co-mingling funds? For tax purposes, is there anything I need to do in order to document all of this correctly? Can I even legally do this without potentially ruining the whole LLC structure in the first place? Here is an example of what may take place:

**Get a HELOC against my personal residence, borrow $20K from that line and deposit it into a personal savings account. Transfer the $20K from my savings into the LLC entity (as an owner deposit), purchase a property and then refinance it a month or 2 down the road in the LLC's name. Place the $20K REFI into the business account at closing, then transfer the $20K back into my personal savings account as an owner withdrawal. Finally pay off the HELOC from the funds in my savings.**

Is this entire process valid? Is there anything that I could do to track this scenario better from a Tax or Legal Standpoint?  Maybe doing this once is okay, what if this were to take place several times a month? 

I have this question out to my CPA and am waiting an answer, I'm very curious on what others have done in a similar scenario?

[Matt Wills]

@Chris Heeren

Your example is totally fine.  Your case is really simple - which is good.  The more owners you have the more muddied the waters get on distributions - they usually have to be in proportion to ownership. 

However, in your case any money you contribute to the LLC you can take out in the form of tax free distributions or losses on your tax return. You can do this as many times as you desire. You basically are just financing the property personally until you can get bank financing. The only issue you would ever run into is if you straddled a year between repayment of the loan, you could experience losses on your individual tax return (which would potentially lower the amount you could repay tax free).

Another option is instead of contributing the money to the LLC, loan it to the LLC.  Draft up a loan document (boiler plate loan docs are available online) and charge minimal interest (The IRS AFR rate for short term is like 0.0079%).  This way if you were ever to get a partner you could side step the proportionate distribution rules.  Also, some banks limit distributions when they loan you money, so this is a way you could get around that provision as well.  

The process you have described in your example is good enough for tax purposes.