So my single-member LLC had a decent year, about $40k net profit. I left it all in the business account because I wanted a cushion. Now my accountant is telling me I still owe taxes on it even though I didn't take a dime out for myself. Is that right? Feels like I'm being taxed on money I can't even use.
LLC Taxes
My LLC made money but I haven't taken any distributions
Yep, welcome to pass-through taxation. The LLC itself doesn't pay federal income tax; the profit flows to your personal return whether you distributed it or not. Sucks but that's how it works.
Wait, is it actually $40k net or gross? Because if youre single member and not electing S-corp, that $40k is hitting your 1040 regardless. The distributions are just you moving your own money around after the fact.
Net. After expenses. I get that now, I think. My accountant said the same but I wanted to hear it from someone who isn't billing me by the hour lol.
The fun part is when you finally do take a distribution and realize it's not taxable again because you already paiid tax on it. My first year I was terrified I'd get double-taxed. Nope, just once. The government is efficient like that.
Also worth noting: leaving it in the account doesn't shield it. Some people think an LLC is a magic tax curtain. It's not. It's a legal entity, not a tax shelter.
Did your accountant mention estimated taxes for next year? Because if you owed a chunk this year you might need to start making quarterly payments or you'll get hit with a penalty. Ask me how I know.
How do you know
Because I wrote a check to the IRS in April that made me rethink my entire life. Anyway OP, the money in the LLC isn't trapped, you can still take it out whenever. It just won't be taxed again. So at least there's that.