Author Topic: Starting an LLC - Can Business Income be Used to Invest?  (Read 3564 times)

alaw

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Starting an LLC - Can Business Income be Used to Invest?
« on: July 30, 2014, 04:57:18 PM »
The goal is to start out small as an LLC (in the US) by publishing some simple apps. Assuming it's even mildly successful, I'd want to use the net earnings to create bigger and more complex apps, eventually hiring others to do a lot of the work.

My main question has to do with what can legally be done with the income after satisfying all legal obligations (taxes, etc.). Could I open up a brokerage account as a business at one of the large brokers and invest the money into securities of my choosing (or even a Vanguard fund)?

Since I plan on being the sole owner, I can basically do as I please with regards to what I choose to do with my company's money - correct?

Thanks.

Cpa Cat

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Re: Starting an LLC - Can Business Income be Used to Invest?
« Reply #1 on: July 30, 2014, 05:06:11 PM »
Yes, you can. On the tax side of things, your LLC will appear on your 1040 Sch C or will be an S-Corp that issues you a K-1. Either way, the business is an extension of you. Any income flows through to you. So if your LLC invests in something and has gains, then you have gains.

There's not a lot of point in keeping the assets in the company's name. You are being taxed on the income whether or not you distribute it to yourself. The LLC provides some protection to your personal assets, so it clearly benefits you to convert the income into investments on the personal side of things rather than the business side.

When you're ready to re-invest the proceeds into expanding your business, you would just make a capital contribution back to your business.

alaw

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Re: Starting an LLC - Can Business Income be Used to Invest?
« Reply #2 on: July 30, 2014, 05:35:25 PM »
Excellent, that makes a lot of sense. Thank you!

CabinetGuy

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Re: Starting an LLC - Can Business Income be Used to Invest?
« Reply #3 on: July 30, 2014, 05:58:55 PM »
Yes, you can. On the tax side of things, your LLC will appear on your 1040 Sch C or will be an S-Corp that issues you a K-1. Either way, the business is an extension of you. Any income flows through to you. So if your LLC invests in something and has gains, then you have gains.

There's not a lot of point in keeping the assets in the company's name. You are being taxed on the income whether or not you distribute it to yourself. The LLC provides some protection to your personal assets, so it clearly benefits you to convert the income into investments on the personal side of things rather than the business side.

When you're ready to re-invest the proceeds into expanding your business, you would just make a capital contribution back to your business.

Fantastic, succinct advice. 

Wesmon

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Re: Starting an LLC - Can Business Income be Used to Invest?
« Reply #4 on: July 30, 2014, 07:32:27 PM »
Why would you invest in stocks through the LLC?  It makes no sense to keep a nonbusiness related asset in the LLC. Imagine the LLC gets sued and you lose - bye bye stocks.  Just take the draw and invest on your own.

BC_Goldman

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Re: Starting an LLC - Can Business Income be Used to Invest?
« Reply #5 on: July 30, 2014, 08:12:18 PM »
Wouldn't one possible advantage be that you could exceed the 17.5k 401k limit by making employer contributions and increase tax-advantaged investments?

Wesmon

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Re: Starting an LLC - Can Business Income be Used to Invest?
« Reply #6 on: July 30, 2014, 08:17:16 PM »
Not sure how you would make it tax advantaged in an LLC vs out. All the income and cap gains pass through to you. If you're talking about a SEP IRA or something like that, it's outside of the LLC, and yes you can contribute more thank 17k.

Cpa Cat

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Re: Starting an LLC - Can Business Income be Used to Invest?
« Reply #7 on: July 31, 2014, 08:23:09 AM »
Wouldn't one possible advantage be that you could exceed the 17.5k 401k limit by making employer contributions and increase tax-advantaged investments?

Are you talking about a Solo 401k? I don't understand why keeping investment assets in the corporation would help with that.

That employer contribution would be based on his self-employment income. Investment income is not normally considered SE income, so it wouldn't increase his contribution limits.

BC_Goldman

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Re: Starting an LLC - Can Business Income be Used to Invest?
« Reply #8 on: July 31, 2014, 04:41:41 PM »
I reread the OP after sleeping and it looks like he wants to invest to increase assets for later use in the company. In that case, my thought on the 401k has no bearing.

I had been thinking that he was looking for investment for his own purposes.