Expert: Ed McFarland - 3/21/2007

Question
QUESTION: My son has started a single entity LLC doing some architectural drawings.  I am helping him set up the books on Peachtree.  When he takes a draw from the LLC, what account should this hit.  An expense such as salary and wages, or should it hit an equity account such as current draws(under Owners Equity).  Is the money he takes for himself from the LLC "salary" or a "draw".  Also what line on Schedule C does he list his draws?
Thank you
ANSWER: The question that needs to be answered, is this to his job and career or is this a side line.

If you are in for the long term, I'd use salary and wages and a W2

If not or for the time being a second job, I'd go the draw and 1099 reporting route.



---------- FOLLOW-UP ----------

QUESTION: This is for side jobs.  Will the LLC issue a 1099MISC to him at year end?  And I am assuming he will still do a schedule C for the LLC- is this correct?
Thank you

Answer
The LLC will issue him a 1099 to account for the income.

If the LLC uses his social security number, then it'll go on the 1040 through schedule C. If it has its own then it'll be a separate return.

Be advised, it has been a while since I've done a return. Make sure you get proper accounting advice, at least check www.irs.gov for the current regs.

Good luck.