How do you properly classify your initial capital contribution to a single-member LLC?

Thanks for explaining! So just to make sure I understand - the $12,500 I put in doesn't get reported anywhere on my tax forms? And then when I use that money for like equipment and software and stuff, I just report those as normal business expenses on my Schedule C?

That's exactly right. The initial $12,500 doesn't appear directly on any tax forms as income or expense. It's essentially establishing your "basis" in the business (which becomes important if you ever sell the business). When you use that money for equipment, software, and other business expenses, you'll report those as deductions on Schedule C. Just make sure to keep good records of all your expenses and the business purpose for each one. Some equipment purchases might need to be depreciated over time rather than fully expensed in year one, depending on the nature and cost of the items.

Does taxr.ai handle the difference between equipment purchases that need to be depreciated versus regular expenses? I have a new LLC too and bought some expensive camera equipment.

I'm a bit skeptical about tax tools specifically for LLCs. Does it actually help with preparing the actual Schedule C or just organizing info? I've used TurboTax before but it wasn't great with my side business.

Yes, it actually does identify which purchases likely need depreciation based on cost and category. It flagged my laptop and office furniture as items needing depreciation and gave me the options for how to handle them. It even explained Section 179 expensing as an alternative. For Schedule C preparation, it does both - organizes everything AND prepares a Schedule C draft you can review or share with your accountant. It's much more specific to business situations than general tax software. It categorizes everything properly so you don't miss deductions, which was my big worry when using regular tax software for my business.

How does Claimyr actually work? Do they just call the IRS for you or what? Seems weird that they could get through when nobody else can.

This sounds like BS to me. Nobody can get through to the IRS these days. I called literally 23 times last month about my LLC tax question. If this service actually worked, everyone would be using it.

They don't call for you - they secure your place in the IRS phone queue and then call you when they're about to connect with an agent. They use some kind of system that navigates the IRS phone tree and waits on hold so you don't have to. I was skeptical at first too, but I was desperate after so many failed attempts. I think not everyone knows about it yet because it's relatively new. The IRS agent I spoke with was super helpful once I actually got connected. She spent almost 20 minutes explaining how capital contributions work for single-member LLCs and confirmed it's not income to the business.

Does the business bank account need to be an actual "business" account or can you just use a separate personal account thats only for the business stuff? The business accounts at my bank have monthly fees.

Technically you can use a separate personal account, but I strongly recommend a proper business account. Yes, some have fees, but many banks and credit unions offer free business checking for small businesses. The reason a true business account matters is that it establishes better separation between you and your business, which helps maintain your liability protection. It also looks more professional when dealing with clients or vendors. Plus, if you ever get audited, having a clear separation makes things much easier to explain and defend. Those monthly fees are typically tax-deductible business expenses anyway.

For multi-member LLCs, the principles are similar but the tax reporting is different. A multi-member LLC is typically taxed as a partnership by default, so you'll file Form 1065 instead of putting everything on Schedule C. The initial capital each partner contributes still isn't considered income to the business. It establishes each member's "capital account" and their basis in the partnership. The percentage of ownership doesn't necessarily have to match the capital contributions - your operating agreement can specify different ownership percentages.

Thanks for explaining this! So we need to file a partnership return even though we're an LLC? And we still track the initial money we put in, but it's for calculating our basis, not as income. Got it.

This is such a helpful way to think about it! The "loaning money to your business" analogy really clicks for me. I've been overthinking this whole thing but when you put it that way it makes perfect sense - of course my own money isn't income to the business, it's just me funding it. I do have one follow-up question though - when you mention tracking additional money you put in later, does that work the same way? Like if I need to inject another $5,000 in a few months, that also just increases my basis and isn't considered income, right? And yes, I definitely need to get that business bank account opened! I've been putting it off but everyone here seems to agree it's essential. Thanks for the practical advice!

Exactly right! Any additional money you put into the business later works the same way - it just increases your basis in the LLC and isn't considered income. So that hypothetical $5,000 you mentioned would be treated just like your initial $12,500. The important thing is to keep documenting these additional contributions the same way you did the first one. I actually use a simple table with columns for date, amount, and description (like "additional capital contribution" or "equipment purchase funding"). This creates a clear trail showing the money came from you personally, not from business operations. Just make sure when you do put in more money that you transfer it clearly from your personal account to the business account - don't just pay business expenses directly from your personal account if you can avoid it. That can muddy the waters and make your bookkeeping more complicated. The business bank account really will make your life so much easier! Once you have that separation, everything becomes much clearer for both day-to-day management and tax time.

This is really helpful advice! I'm also just starting out with my LLC and the capital account tracking idea is brilliant. Can I ask - when you mention that equipment might need to be depreciated, is there a specific dollar amount threshold where that kicks in? Like if I buy a $800 laptop vs a $3000 computer setup, would they be handled differently? I want to make sure I'm planning my equipment purchases smartly from a tax perspective.

Great question! There isn't a hard dollar threshold that automatically triggers depreciation requirements, but there are some general guidelines. Typically, items under $500-$1000 can often be expensed immediately as supplies or small equipment, while more expensive items like your $3000 computer setup would normally need to be depreciated over several years (computers are usually 5-year property). However, here's the key thing that can save you a lot of hassle: Section 179 allows you to immediately deduct up to $1.08 million (for 2023) of qualifying business equipment purchases in the year you buy them, instead of depreciating them. So both your $800 laptop and $3000 computer setup could potentially be fully deducted in year one under Section 179. The main requirements are that the equipment is used more than 50% for business purposes and that your total business income is enough to cover the deduction. For a new LLC, this is usually the way to go since it simplifies your bookkeeping and gives you the tax benefit upfront when you probably need the cash flow most. Just make sure to keep good records of the business use percentage for each item!

This is such great practical advice! The savings account analogy really helps clarify why the initial contribution isn't income - I never thought about it that way before. And I love the tip about writing "Initial Capital Contribution" in the memo line. Those little details that create clear paper trails seem so obvious once someone points them out, but I definitely wouldn't have thought of that on my own. I'm curious about the bookkeeping apps you mentioned - are there any specific ones you'd recommend for someone just starting out? I've been using a basic spreadsheet but I'm wondering if there's something designed specifically for small LLCs that might make categorizing expenses easier. Especially since I'm still learning what all the different expense categories should be. Also, thanks for mentioning the Schedule C preparation - that's been another source of anxiety for me since I've never had to deal with business taxes before. It's reassuring to hear that good record-keeping from the start makes it much more manageable!