Paying LLC Attorney Fees/Costs - From Personal or LLC Account?

Question

So, I finally decided to start an LLC. After much debate and discussion, I decided to use my local attorney to do it. I checked with a tax advisor and they said all the start up costs are tax deductible, which makes sense. The one thing I forgot to ask, however, is whether or not it matters if I pay these costs from my personal checking vs. the LLC checking account.

I am a single member LLC and plan to maintain the "disregarded entity" status for tax purposes. Ultimately, it will flow through to my personal 1040. I'm assuming it doesn't matter, but I wanted to check.

Basically, I need to write the attorney a check for his fee to set it up, draft the operating agreement, etc. I will receive his bill with the final documents. I haven't yet opened up the business checking account for the LLC (as I'm waiting on the documents). Once I have them, I plan to open it at that time. I'm trying to avoid delaying paying the attorney's bill if it doesn't matter, as it's easier to just write a personal check. If there's a reason I should wait until the business checking account for the LLC is open and write the check from that account, I'll do that. Interested in feedback from accountants or others that may have some insight.

Mark S. · Answer

Got the bill today with stamped/filed papers. Business checking account to be opened tomorrow. I was advised all funds are on hold for 9 business days during first 30 days account is opened. Hmm....

Mark S. · Answer

Claude S. , because one of the requirements to open the accounts are stamped articles of organization. They attorney will mail back stamped originals with the bill and figured I'd need to wait for those. I went ahead and printed the stamped copies off the secretary of state's website and am hoping those will suffice. I am going to reach out to the credit union today to confirm.

Claude S. · Answer

Why are you waiting to open the LLC checking account? When I establish a new LLC (I have one for each rental) I open a new checking account simultaneously. That way I can pay bills right away.

Mark S. · Answer

Gord Stevenson, thanks. That makes sense, although not ideal. Derek Lacy , I am talking about paying the attorney fees to set up the LLC. I am really good about saving receipts/documentation/etc. anyway, so that shouldn't be a problem. Just didn't know if it made a big deal in this case. My plan is to write a personal check from my personal checking account into the LLC as a capital contribution. Since I will be using the LLC for small syndication deals with a local sponsor, the only checks going out (after I take care of paying the attorney) should be to that sponsor (or their newly created LLC for each property) for new deals. They keep approximately 40% reserves for maintenance and other expenses, so I shouldn't have to write many, if any, additional checks after the deals are funded. The only I coming funds, other than additional capital contributions for new deals, would be quarterly distributions from the syndicated rentals. I'm trying to keep this as simple as possible. I hope I'm approaching it the right way. Any CPA or other tax advisor, please feel free to chime in. I've already consulted a tax advisor initially, but honestly wasn't overly impressed. Most of my basic questions were answered, but things come up, like my initial question in this thread.

Derek Lacy · Answer

sorry I thought you meant for start up costs. Like filing fees and attorney fees. No, close the property in the LLC name, if you desire LLC protection, or make sure at minimum to pay an attorney to do the transfer from personal to LLC.

Danny F. · Answer

@Derek Lacy I already have my own personal property. However, as I venture to purchasing my first MFR, is it okay to create a LLC after and closed and started to collect rent. Or should these all be done prior to purchase?

Derek Lacy · Answer

Yes. Do not get too caught up on it. Pay it how you can today but keep the receipt. Once you have the LLC checking account set up, fund it then write a check back to yourself to the exact penny for reimbursement of costs incurred. That's why business people keep lunch receipts then they can pay for lunch and be reimbursed.

Gord Stevenson · Answer

@Mark S. Yes, ideally I would set up the LLC's bank account as early as possible and pay all expenses from there. Where that is not practical I would record any expenses paid from a personal account as a loan or equity infusion from the owner so your records clearly show an intent for the LLC to operate independently from you the individual.

Mark S. · Answer

@Gord Stevenson, so the you would open LLC account first and pay attorney from that LLC account?

Gord Stevenson · Answer

The main purpose of an LLC or LLP is to contain liability within the LLC/LLP so that your other assets are safe(r). However, if you commonly mix personal and LLC business the liability protection can be lost. Search on "piercing the veil". It is better to have a separate bank account in the name of the LLC, and pay all LLC expenses from that account. Where that isn't practical, I would record the expense and note it as an "owner contribution" or in accounting terms an increase in "owner equity" or as an owner loan. Later, when the LLC's bank account is flush from incoming revenue then you can pay back the owner loan or reduce equity by reversing the contribution. I.e. Make it clear in your records that you and the LLC are operating independently.