Single Member LLC And Possible Action Taken By IRS (credit card, payments, owner)
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I own a small single member LLC and for some reason despite my customers knowing my business name. They always right my real name instead of my assumed business entity name on the checks! I am unsure how to pay myself yet as this is my first year in business and I haven't been able to get any clear answers. So I've been doing it this way. When clients write my personal name. I just put it into my personal checking.
When they write my business name I put it into the business bank account and take 15.3% out into a separate account for Social Security And Medicare. I'm pretty sure this is illegal. But how would the IRS find out about those checks in my name going into my personal account? How would they prove it without just making outrageous claims against me without solid proof?
You probably haven't done anything illegal yet, but you are setting yourself up for a god-awful mess. One reason for having an LLC is to limit personal liability, but if you mix funds the way you are you might be creating personal liability.
Depositing checks and not declaring the income on your taxes is definitely illegal. It is called tax evasion.
You could theoretically be caught in a number of ways. One of your unhappy clients could rat you out. Your tax returns could show unusual expenses for the amount of income, causing a red flag. Your home office deduction, if you take one, increases audit risk. Random audit.
How many checks do you get anyway? I think I have received only on check in 3 years for my side business. The vast majority of payments are by credit card, or occasionally cash. If you get a check made out incorrectly, you need to correct your invoice to clarify who the check is to be made out to, or politely ask your clients to correctly name the payee.
I had a LLC for 20 years, pass through entity to IRS. But never once would I accept a check in my name. Operate through your company, not outside. It is why you formed the company. Once deposited you can transfer to a personal account or otherwise use. But you can not sign and accept a check outside your business, that is a must.
because for some reason... you thought a simple sole proprietor DBA wasn't adequate.
Go back to the attorney and CPA who advised you on these choices
and instructed you on the day to day management protocols.
Ask for a refund.
There are reasons to be a single member LLC. Pass through liability is one. The ability to take out loans under the LLC without personal guarantees is another.
Quote:
Originally Posted by TestEngr
I had a LLC for 20 years, pass through entity to IRS. But never once would I accept a check in my name. Operate through your company, not outside. It is why you formed the company. Once deposited you can transfer to a personal account or otherwise use. But you can not sign and accept a check outside your business, that is a must.
Yes. Agreed. Completely accurate.
OP should either be a sole proprietor dba, or an LLC. Don’t do sometimes one, sometimes the other. You lose the benefits of either and gain all the risks of both.
I think it's just a bookkeeping issue with a variety of ways to make it right.
OP could deposit the checks in his account then turn around and transfer the same amount of money to his business account, making note of what customer it was from. Or, depending on how the bank account is set up, couldn't he sign his name and the business name on the back and deposit it directly?
For taxes, of course the OP needs to declare all of the income, no matter how the check is made out or which account it's deposited in.
I have a dba sole proprietorship. When I was audited, the IRS didn't care which accounts funds went into, just that I reported everything accurately to them. Which I did.
I own a small single member LLC and for some reason despite my customers knowing my business name. They always right my real name instead of my assumed business entity name on the checks! I am unsure how to pay myself yet as this is my first year in business and I haven't been able to get any clear answers. So I've been doing it this way. When clients write my personal name. I just put it into my personal checking.
When they write my business name I put it into the business bank account and take 15.3% out into a separate account for Social Security And Medicare. I'm pretty sure this is illegal. But how would the IRS find out about those checks in my name going into my personal account? How would they prove it without just making outrageous claims against me without solid proof?
They’re going to find out because the companies that send you money you’re going to send a 1099 tax form to the IRS. It doesn’t matter what name they write. I was a single entity LLC to. I had a business name, but my checks came with my real name. I declared them all, I had an accountant that told me how much to pay I paid my quarterly taxes on time to make sure I didn’t have a big tax liability at the end. Before I began my business, I had the accountant tell me everything I needed to know. You can’t just hide business checks under your real name when your real name is listed as the proprietor of the business. Also doesn’t matter what bank account you put them in or if you deposit them at all. I did not have a separate business account I put everything into my personal account and makes no difference in the slightest.
By the way, hiding income is only going to result in a smaller Social Security check one day when you’re old.
I am a single member LLC and when I invoice clients I instruct them on the invoice to make checks payable to the LLC. I'd recommend you do this going forward; however, I believe you can deposit checks written to you in your business account.
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