Can my LLC still deduct expenses after reimbursing members who paid from personal accounts?

But I've heard accountants say that member reimbursements in an LLC aren't deductible to the business if you've elected partnership treatment? Something about it being considered a distribution? Is that wrong then?

That's a common misconception. As long as you have proper documentation showing these were legitimate business expenses, they remain deductible to the LLC. The reimbursement is not a distribution - it's repayment for business expenses you covered. The confusion often comes from how members sometimes take actual distributions, which are different. Distributions are shares of profit and aren't deductible. But expense reimbursements are different - they're the company paying for its own legitimate business costs that happened to go through your personal account first.

How does this actually work though? Do you upload your receipts and bank statements and it sorts them? I'm in a similar situation with about 70 different startup expenses paid from personal accounts.

I'm skeptical about these AI tax tools. Wouldn't an actual accountant be better? This seems like a complicated situation where actual tax advice would be needed, not just document sorting.

You upload your statements and receipts, and it extracts and categorizes everything automatically. The system identifies which expenses are legitimate business expenses vs. personal ones, and then provides documentation for proper reimbursement. It handles a high volume of receipts extremely well - 70 wouldn't be a problem at all. Having used both, I've found it's actually more thorough than my previous accountant for documentation purposes. It doesn't replace tax advice, but it creates the proper documentation trail you need to support the deductions. My accountant actually loved the organized reports it generated and said it made everything much cleaner for filing.

Wait, what is this Claimyr thing? I thought it was impossible to get through to the IRS. I've been trying to get clarification on business expense reimbursements for weeks.

Yeah right. No way you got through to the IRS in 20 minutes. I've tried calling them about my LLC issues multiple times and gave up after being on hold for 2+ hours each time.

It's a service that navigates the IRS phone system for you and calls you back once they have an agent on the line. It literally does all the waiting for you. When they get an agent, your phone rings and you're connected directly to the IRS representative. I was super skeptical too! I had spent over 3 hours on multiple calls trying to get through about my LLC question. With Claimyr, I put in my number, they called me back in about 20 minutes, and suddenly I was talking to an actual IRS agent who answered all my questions about expense documentation. It was honestly worth it just to finally get a definitive answer on the reimbursement vs. loan documentation requirements.

Wouldn't a capital contribution be different than a reimbursement though? We definitely want to get paid back for these specific expenses rather than considering them as putting more money into the business long-term. Would the documentation requirements be different?

You're right that they're different concepts. With reimbursements, you're simply getting back money you spent on behalf of the company. The documentation focuses on proving these were legitimate business expenses (receipts, business purpose, etc.). With capital contributions, you're technically increasing your investment in the company. You can still take that money back later as a return of capital (not taxable until you exceed your basis). The documentation here would be in your operating agreement and company books showing the increased capital account balances. It's more formal but can be advantageous in some situations, especially if the amounts are larger or if you might need to show increased investment in the company later.

Would you be willing to share a template of that spreadsheet? I'm in a similar situation with my partner and we've been tracking things haphazardly.

This is really helpful! I'm new to LLCs and this whole reimbursement process seemed confusing at first. One question - when you say "have the LLC formally approve and pay the reimbursements," what does that look like in practice for a small 2-member LLC? Do we need to have formal board meetings or can we just document the approval in our records? Also, how quickly do these reimbursements need to happen to maintain their legitimacy as business expenses rather than distributions?

For a 2-member LLC, you don't need formal board meetings like a corporation would. You can document the approval through: 1. Written resolutions signed by both members approving the expense reimbursements 2. Meeting minutes (even informal ones) showing both members agreed to the reimbursements 3. Email chains between members discussing and approving the expenses 4. Simple written documentation in your LLC records The key is showing there was member approval and business justification for each expense. As for timing, there's no hard IRS deadline, but best practice is to process reimbursements within a reasonable timeframe (ideally within the same tax year, but definitely within 60-120 days). The longer you wait, the more it might look like a disguised distribution rather than a legitimate expense reimbursement. Just make sure your operating agreement addresses expense reimbursement procedures - this gives you additional legal backing for treating these as business expenses rather than member distributions.

This is super reassuring! I'm in almost the exact same boat - about $2,800 in startup expenses that my business partner and I covered personally. The email approval documentation sounds much more manageable than I was thinking it would be. One quick question - when you say "process the reimbursements through proper business accounting," do you mean we need to use accounting software like QuickBooks, or is a simple spreadsheet with clear documentation sufficient? We're pretty bootstrapped right now and trying to keep costs down while we get established. Also, did your CPA give you any guidance on what happens if we can't get all the reimbursements processed before year-end? Would we lose the deductions for this tax year or could the LLC still claim them?

@c9ca11007d05 Great question about the accounting documentation! You don't necessarily need expensive software like QuickBooks right away. A well-organized spreadsheet can work fine for basic record-keeping, especially when you're just starting out. The key is making sure you track the expense date, amount, vendor, business purpose, who paid, and reimbursement date. However, I'd recommend at least considering something like Wave Accounting (which is free) or the basic QuickBooks plan - it makes everything look more professional and creates better audit trails if needed. As for the year-end deadline, my understanding is that if the LLC expenses were incurred this year, the company can still deduct them even if reimbursements happen early next year. The deduction timing is based on when the business expense occurred, not when the reimbursement was processed. But definitely confirm this with your CPA since there might be cash vs accrual accounting considerations that could affect the timing!