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If I start a business (LLC, specifically) and incur some of the startup costs with my own money, how do I account for this in the bookkeeping once the LLC's bank account is up and running?

For instance, on my own personal books, I have an expense account which is labeled "LLC Startup Expenses". When I create the LLC, I want to be able to somehow move the start up expenses to reflect the fact that the LLC had these expenses, not me personally (e.g. zero out the "LLC Startup Expenses" on my own books). What is the best way to go about this?

Rich
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6 Answers6

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Typically you give a loan to the company from yourself as a private person, and when the company makes money the company pays it back to you. Then the company pays for all the expenses with the money from the loan.

Even if you don't want a business account yet, you can probably ask your bank for a second account (mine in the UK did that without any problems).

gnasher729
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You don't even need to formally loan the LLC any money. You pay for the setup costs out of pocket, and then once the LLC is formed, you reimburse yourself (just like with an expense report). Essentially you submit an expense report to the LLC for the startup costs, and the LLC pays out a check to you, categorized for the startup expenses.

Andrew Savikas
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If you are using software like QuickBooks (or even just using spreadsheets or tracking this without software) use two Equity accounts, something like "Capital Contributions" and "Capital Distributions"

When you write a personal check to the company, the money goes into the company's checking account and also increases the Capital Contribution account in accordance with double-entry accounting practices.

When the company has enough retained earnings to pay you back, you use the Capital Distributions equity account and just write yourself a check. You can also make general journal entries every year to zero out or balance your two capital accounts with Retained Earnings, which (I think) is an automatically generated Equity account in QuickBooks.

If this sounds too complex, you could also just use a single "Capital Contributions and Distributions" equity account for your contributions and distributions.

Rocky
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3

How do I account for this in the bookkeeping?

Here is an example below:

enter image description here

This is how you would accurately depict contributions made by an owner for a business. If you would want to remove money from your company, or pay yourself back, this would be called withdrawals. It would be the inverse of the first journal entry with cash on the credit side and withdrawals on the debited side (as it is an expense).

Here is the main point:

You and your business are not the same thing. You are two different entities. This is why you are taxed as two different entities. When you (the owner) make contributions, it is considered to be the cash of the business. From here you will make these expenses against the business and not yourself.

Good luck,

Liam
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An LLC is a pass-through entity in the USA, so profits and losses flow through to the individual's taxes. Thus an LLC has a separate TIN but the pass-through property greatly simplifies tax filings, as compared to the complicated filings required by C-corps.

Mark Ginsburg
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If you have a single member LLC there is no need to separate expenses in this way since it is simply treated as part of the owner's normal tax returns. This is the way I've been operating.

Owner of Single-Member LLC If a single-member LLC does not elect to be treated as a corporation, the LLC is a "disregarded entity," and the LLC's activities should be reflected on its owner's federal tax return.

If the owner is an individual, the activities of the LLC will generally be reflected on:

Form 1040 Schedule C, Profit or Loss from Business (Sole Proprietorship) (PDF)

Form 1040 Schedule E, Supplemental Income or Loss (PDF)

Form 1040 Schedule F, Profit or Loss from Farming (PDF)

An individual owner of a single-member LLC that operates a trade or business is subject to the tax on net earnings from self employment in the same manner as a sole proprietorship. If the single-member LLC is owned by a corporation or partnership, the LLC should be reflected on its owner's federal tax return as a division of the corporation or partnership.

https://www.irs.gov/businesses/small-businesses-self-employed/single-member-limited-liability-companies

Tracy Cramer
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