Initial equity contribution repayment

Forum|Forum|4 years ago
April 29, 2022
1 reply
0 views

We have an LLC taxed as a corporation (we are foreign owners).

When forming an LLC we made equal initial equity contribution in cash, then after 4 years ago we made additional equity contributions, again in cash and equal.

Now we have cash on our bank accounts and we would like to repay the equity contribution we made 4 years ago. What tax coincidences are we facing if we make the repayment and lower the equity contribution, if any?

Do we have to pay dividends as well in order to do be allowed to lower the equity contributions?

Let's just say for overall example, if we both contributed first 100K, and then additional 50K, and we are planning to make taxable income 25K this year, and would love to pay back 50K to both members? Do we need to distribute the 25K to dividends first? Do we have to pay any taxes when paying out additionally made cash contributions?

Not A Product Question

Mike9241

S or C Corporation? generally dividends/distributions paid by an S-Corp are tax-free as long as the shareholder has a tax basis. C-Corp dividends are taxable to the extent of accumulated earnings and profits. this is not necessarily the same as what may show up as retained earnings. E&P is determined under code sections 301,312, 316 and the related regulations. dividends/distributions in excess of E&P are first treated as a return of capital to the extent the shareholder has a tax basis any excess is capital gain. the fact that you are foreign owners could affect the results. consult a tax pro.