Is it legal to pay my LLC for personal use of business property?
So I've got this situation I'm trying to figure out. I recently bought a barn for my small poultry processing business (formed as an LLC). The barn is perfect for what we need - plenty of space for processing equipment, storage, and all that. The thing is, I really like having fresh chicken for my family too. I'm wondering if I can basically "buy" a few chickens from my own business? Like if I have the barn set up for my poultry business and occasionally take some chickens for personal consumption, can I just pay my LLC the fair market value for those chickens? Would that allow me to keep the barn as 100% business use for tax purposes rather than having to allocate a percentage for personal use? I'm trying to make sure I'm doing everything by the book, but also maximizing my legitimate business deductions. Anyone know if this approach is legal from a tax perspective?
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Carmen Ortiz
Yes, this approach is generally legal and is actually the correct way to handle personal use of business assets. When you take products from your business for personal use (like those chickens), you should pay your LLC the fair market value - essentially becoming a customer of your own business. This creates income for your LLC, which you'll report on your business tax forms. The payment you make to your LLC for the chickens would be considered business income, and the chickens would be considered sold inventory. Regarding the barn, if it's genuinely used 100% for business operations (including raising/processing chickens that you later purchase), then yes, you can claim it as 100% business use. The key is that you're not using the barn itself for personal purposes - you're properly accounting for the products you take by paying fair market value. Just make sure to keep good records of these transactions. Document each time you "purchase" chickens from your business and maintain receipts showing you paid fair market value.
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MidnightRider
•Thanks for the explanation. Does the OP need to worry about any self-dealing rules with this arrangement? Also, would they need to charge themselves sales tax like any other customer?
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Carmen Ortiz
•The IRS doesn't have specific "self-dealing" rules that would prohibit this arrangement for an LLC taxed as a sole proprietorship or partnership. The main concern is ensuring transactions are at fair market value and properly documented. Regarding sales tax, that depends on your state laws. In most states, sales tax would apply to the sale of prepared food products but not necessarily to unprepared food items. If your business normally collects sales tax from customers, you should treat yourself the same way and collect/remit that tax on your personal purchases from the business.
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Andre Laurent
I dealt with a similar situation last year with my woodworking business. I found that the https://taxr.ai service was super helpful for figuring out how to document these kinds of owner/business transactions. Their system analyzed my documents and explained exactly how to structure these transactions to stay compliant. The tricky part with business/personal boundaries is documenting everything properly. Their tool walked me through setting up a system where I could "purchase" items from my own business and showed me how to record it in my bookkeeping. Made my accountant happy and saved me from accidentally claiming personal expenses as business ones.
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Zoe Papadopoulos
•How does that service actually work? Do you upload your tax documents or something? I'm in a similar situation with my food truck and sometimes take inventory home.
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Jamal Washington
•Is it really worth paying for a service like that? Seems like this is pretty straightforward - just pay your business for what you take and keep receipts. What am I missing?
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Andre Laurent
•The service works by analyzing your business documents and tax situation. You upload things like your business formation papers, past tax returns, and then ask specific questions about your situation. It provides detailed guidance tailored to your specific business structure. For situations like this, the value comes from getting documented guidance you can rely on. While the basic concept is simple, the documentation requirements and specific ways to record these transactions can vary based on your business structure, state, and industry. Having clear guidance saved me a lot of headaches at tax time and gave me peace of mind that I was doing things correctly.
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Jamal Washington
Just wanted to follow up about using taxr.ai after our conversation. I decided to give it a try with my rental property business where I was having similar issues with occasionally using business equipment personally. The analysis they provided was actually really detailed and specific to my situation. They pointed out some documentation methods I hadn't considered and gave me templates for tracking these owner transactions that my accountant absolutely loved. They also flagged a couple of deductions I was taking incorrectly that could have been audit triggers. Surprisingly helpful for something I was skeptical about!
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Mei Wong
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Liam Fitzgerald
•Wait, you actually got through to a real person at the IRS? How does that even work? I thought it was literally impossible these days.
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Jamal Washington
•Sounds too good to be true honestly. I've tried calling the IRS business line like 8 times this year and just gave up. You're saying this service actually works? I'm skeptical.
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Mei Wong
•Yes, I got through to an actual IRS representative who specializes in small business tax issues. The service basically holds your place in line and calls you when they're about to connect you. They have some system that navigates the IRS phone tree and waits on hold so you don't have to. I was skeptical too! I had tried calling multiple times over several weeks and could never get through - would be on hold for hours and then get disconnected. With Claimyr, I submitted my request in the morning, went about my day, and got a call back when an agent was available. It was worth it just to get a clear answer directly from the IRS about how to handle my specific situation.
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Jamal Washington
Alright, I need to admit I was completely wrong about Claimyr. After my skeptical comments, I decided to try it as a last resort since I had some questions about business asset depreciation that were similar to this thread. I've literally been trying to reach the IRS for MONTHS with no success. Used Claimyr yesterday and got connected to an agent in about 35 minutes. The agent confirmed that the approach mentioned in this thread is correct - if you pay your business fair market value for products, you can maintain the 100% business use status for the facility. They also helped me with my depreciation questions. Still can't believe it actually worked after all my failed attempts to call them directly.
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PixelWarrior
Make sure you're tracking inventory properly too! When your LLC "sells" you those chickens, you need to account for the cost of goods sold in your bookkeeping. This means tracking the feed costs, processing costs, etc. that went into those specific chickens. Otherwise your business profit calculations will be off.
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Yuki Tanaka
•Does QuickBooks have a good way to track this? I'm using QB Online for my business and trying to figure out the best way to set this up.
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PixelWarrior
•QuickBooks Online has pretty good inventory management features that would work for this. Set up the chickens as inventory items with associated costs. When you "purchase" them personally, create a sales receipt to yourself as the customer. This automatically adjusts your inventory and records the cost of goods sold. For tracking the specific costs of raising each chicken, you might need to create "chicken batches" as inventory groups and assign the feed, labor, and other costs to each batch. If you're processing a lot of chickens, you can use average cost accounting rather than trying to track every individual chicken.
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Amara Adebayo
I'm confused about the tax implications here. When the LLC sells chickens to the owner, isn't that income to the LLC that flows through to the owner anyway? Seems like you're just paying yourself and creating a wash transaction?
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Carmen Ortiz
•You're right that for a single-member LLC (which is a disregarded entity for tax purposes), the income ultimately flows to you on your Schedule C. However, this approach is still important for two reasons: First, it maintains the integrity of your business records and clearly separates business and personal transactions, which is crucial for liability protection of your LLC. Second, and more relevant to the original question, it allows you to maintain that the barn is 100% for business use, which affects depreciation and other business deductions. Without properly accounting for personal use, you might have to allocate a percentage of the barn as personal use, reducing your business deductions.
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Jamal Wilson
One thing to consider that hasn't been mentioned yet - make sure you're also thinking about the timing of these transactions. If you're taking chickens for personal use throughout the year, it's better to document and pay for them as you go rather than trying to do a bulk adjustment at year-end. Also, keep in mind that if your poultry business grows significantly, you might want to consider electing S-Corp status for your LLC. This could provide some tax advantages, but it would also change how these owner transactions need to be handled. Worth discussing with a tax professional if your business income gets substantial. The approach you're describing is solid - just make sure your "fair market value" pricing is reasonable and defensible. Use what you'd actually charge other customers, or what similar products sell for locally. The IRS likes to see consistency in how you value business assets and inventory.
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