Transferring inventory into LLC
Formed LLC, but wonder how to account for inventory I've already purchased and will now sell via the company.
I've been re-selling as a hobby, and now converting to a business.
I'm in the US. No prior business structure.
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And that would be happening where? LLC's are treated very differently across the globe. – Littleadv 11 years ago
1 Answer
What was your organizational arrangement before? Sole proprietorship? Does the LLC have money in it yet? If it does, the LLC can essentially buy them from you. You are basically buying them from yourself, but that gets them into the LLC and gets your SP money back. How much in inventory are we talking about? Alternatively, your accountant could treat the dollar value of the inventory as either a loan to the LLC or an investment in the LLC. Then you could pay out the money for the inventory as it comes in on a non-taxed basis. You would just be making yourself whole.
You really need to discuss this with your accountant though. There are a LOT of pitfalls in this area and specific ways that it has to be classified or else you will be paying taxes on the money you have spent.
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I believe that other than the last paragraph, your answer is wrong. To begin with, it is wrong because you're answering without knowing what jurisdiction is involved. It seems like you're assuming US, but the way LLC's are treated in the US is different from most of the world. And even in the US that would be wrong. – Littleadv 11 years ago
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You make an excellent point. Assumption is the mother of all...... But, in the US it is correct. I have been the part of spinning off several companies from others. Anything transferred into the new company can be paid out as though you had invested cash. Then, the tax liability is transferred to the individual or parent company who has the invoices to deduct that from their income. It is a net-zero transaction from a tax basis. – Need A Geek Indy 11 years ago
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In the US LLC's are disregarded, and thus nothing is "transferred" into the company because there's no company (for tax purposes). What you're describing may be used as an accounting trick, but is meaningless. It is a net-zero transaction - because there's no transaction. – Littleadv 11 years ago
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LLC's are pass-through entities. They do exist though, even for tax purposes. They just pay no taxes directly, all profits are passed through to the owners. I am not going to argue with you. It is not an accounting trick, it is just a way to separate out the LLC from personal finances. – Need A Geek Indy 11 years ago
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I wonder why all of a sudden I got 5 downvotes in a row on my old answers, all within the last couple of hours.... Oh well. – Littleadv 11 years ago
