How contributions are taxed for LLC

Question

I just started my LLC for Realestate purposes and am signing up for a tax ID in order to open a bank account using the LLC. My question is, what if my family wants to give me money to jump start my business. How are these contribution taxed? I understand the laws of gift taxes, where an individual can only gift up to $15,000 a year, but I don’t think this would fall under this. Are there certain restrictions to someone else other than yourself contributing to a sole proprietorship LLC? What are the tax implication of making contributions to an LLC? Can someone just give me $100,000 and put it in my LLC? There also would be no interest on these contributions given by the other party.

Greg Scott · Answer

Talk to a CPA before you do anything else. A lot will depend on how you have your LLC set up and your tax elections.

Unless you have the LLC set up as a multi-member LLC and the "gift" is their contribution as members, most likely their funds will be seen as an oversized gift and taxed accordingly.

A smarter way to do it might be to make it a multi-member LLC and then to have them "gift" you a little bit of their ownership each year so you fall under the gift threshold. I'm sure there are other strategies.

Basit Siddiqi · Answer

@Jiwei YangYou should consult an accountant.You don't want to screw anything up and have the LLC turn into a multi-member LLC if that is not the intent.The question is if the capital provided is a capital contribution by a partner/member or a loan.There is also the issue of imputed interest.

Jiwei Yang · Answer

@Greg Scott

Thanks!

Jiwei Yang · Answer

@Basit Siddiqi

Thanks! I will speak with a CPA to see what they suggest. It’s just such a weird concept that even thought the individual paid taxes an it already, there would be additional taxes.

How contributions are taxed for LLC

4 Replies