Help! It’s tax time and I am need advice about my small business.?

Question by lookingforanswers: Help! It’s tax time and I am need advice about my small business.?
Early in 07, I planned to form an LLC in Michigan,as a sole proprietor. I registered a DBA, and got a federal tax id, but that is all. Is it a business at this point, or do I need to submit articles of incorporation, to make it official? I formed it because I wanted to start a business renovating distressed homes as well as doing home staging and home improvements for others. I pulled out my 401k and purchased a vacant home at an auction and renovated it to kick off this business. If I put the money from the sale into a business checking, but then pull out money as needed for living expenses not related to the business, will I have to pay taxes on what I pull out of it, as it may be viewed as paying myself income? During this time, as far as my “real” job goes, I have lost income this year and my credit has gone from great to horrible and I fear that my creditors will sue. Would funds in a business acct be protected so I can continue?
to clarify…the funds put into the business aren’t taxable, but if, for example, $ 300 per month were pulled out and not used for marketing/epenses, but instead, as living expenses, would they be treated as taxable income? If not, please explain why. Is if because it’s a sole proprietorship, so it all washes out in the end?
The money from the sale was not profit, but what is left of my 401k that I pulled out to buy it with.

Best answer:

Answer by jeff p
you do not have to incorporate to be an “official” business. If you did incorporate as a LLC with no other partners, the IRS would consider you a sole proprietor anyway.

If you made a profit on your renovation, that profit is taxable no matter what you did with the money. You would fill out a schedule C and any profit would transfer to Form 1040. also, if more than $ 400. , you transfer to Schedule SE to pay self employment tax. (social security)

Putting money you earn from your business into a business checking account has nothing to do with it being taxable or not. If it is profit, it is taxable. If you sold a home and the buyer went through a closing agent, the sale was reported to the IRS by the agent.

funds in a business account would not be protected from creditors.

If you took money out of a 401K you had two months to get it back into a retirement account without having to pay taxes on it.

Money you take out of your business is not like paying yourself income, it is already your income. If you made a profit on your Schedule C, it makes no difference where the money is, it is a profit and it is taxed. If you had a loss on the sale of the house, you have no tax there, if you have an overall gain on the business, you pay tax. makes no difference if it was a corporation, the profit would flow through the corp to you, and you would pay tax on it,/. A S corp or LLC cannot retain earnings, they flow to the owners of the corp.

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