Any CPAs here? Question regarding business expense

Well, I am a financial accountant, but not a tax accountant, so this could be wrong. (Disclaimer)

Are you, the person, buying the 2%, or is the PLLC buying the 2%?

Either way, buying companies is an equity transaction, not an expense.

 

Is MnM paying you 1099 now? Will they stop once the theoretical transaction occurs?

 

I'm trying to understand, I'm seeing that there are two transactions here: (1) a $50k loan, and (2) a $50k contribution for ownership stake in the LLC.

(1) For the LLC, the $50k loan is recorded on the balance sheet as note payable, and any interest will be recorded as an expense allowable for deduction to taxable income. Your Federal Schedule K-1 would reflect the taxable income that you are due, based upon your profit / loss % share (which could be different from your % ownership) and that would be where the interest expense would be reflected for your share. There will need to be a note showing the terms of the loan, including date of loan initiation/maturity, the parties of the loan (payee/payor), interest terms, etc.

(2) the $50k contribution for ownership is not tax deductible. This is your stake in the ownership in the entity

 

This is correct. It's not an expense, it will go on the balance sheet and only expense would be on interest (you'd actually want to do interest, because if you don't it could be considered a capital contribution to MnM).

When the loan is paid back (either through payments and/or lump sum), it is not a taxable event.

I'm trying to understand why you want to setup the PLLC in the first place. Any income going into the PLLC will flow through to your 1040 anyway correct (through schedule K)? Why not just give the money directly to the company and be done? You're not really getting any tax break. Interest expense on the PLLC will be offset by interest income to yourself.

 

I'm an Internet CPA and that's sketchy AF.

 

If you elect to do as an S Corp/essentially tax it as a sole proprietor, then yeah you're not taking salary and paying payroll taxes, just taking distributions. It just doesn't seem like there is a reason to.

If the company already has protections in it in the form of being a corporation/LLC, doesnt make a ton of sense to me to "double protect". You'd be paying to set all this up, and then not really get a ton of benefit from it. If the person suing the company can get through their LLC, what makes you think they won't go through your personal LLC that's only owned by one person and setup specifically to funnel funds through to you?