My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.

Finance

I started an LLC with my own cash. Can my company now reimburse me without it being a taxable event?

Guest Writer
Head of Financial Partnerships, Xero Americas
min read
Opinions expressed by Entrepreneur contributors are their own.
Being able to return your invested capital is quite an accomplishment in only eight months of business. Nice job!

Before I answer your question, keep in mind that as a single member LLC you can be classified as either a disregarded entity (i.e. sole proprietor) or corporation for tax purposes but legally maintain LLC status.

As a disregarded entity you are treated as a sole proprietorship for tax purposes and would simply report income and expenses on Schedule C of your 1040 personal tax return. To be treated as a corporation you need to file Form 8832 and elect to be classified as a corporation. You would be required to file tax form 1120 as a corporation.

The short answer to your question is that a return of capital is not a taxable event. More specifically, the Internal Revenue Code states that a non-dividend distribution in the form of a return of capital to a single member LLC is tax-free to the extent that it does not exceed the stockholder's stock basis.

If the business had income or experienced another taxable event (i.e. sale) during the year then you would likely be subject to income taxes. Based on the information you have provided, it appears as though you will have income for the year and thus will be subject to income tax. However, the return of the initial capital investment is not taxable.

Keep up the good work and let us know if you have any additional tax questions.

More from Entrepreneur

Kathleen, Founder and CEO of Grayce & Co, a media and marketing consultancy, can help you develop a brand strategy, build marketing campaigns and learn how to balance work and life.
Book Your Session

In as little as seven months, the Entrepreneur Authors program will turn your ideas and expertise into a professionally presented book.
Apply Now

Create your business plan in half the time with twice the impact using Entrepreneur's BIZ PLANNING PLUS powered by LivePlan. Try risk free for 60 days.
Start My Plan

Latest on Entrepreneur