What Is the Limit of Debt You Can Report With an LLC?

An LLC can accumulate debt in the name of the business.

A limited liability company (LLC) is an independent legal entity that is separate from its owners, just like a corporation. An LLC can contract, obtain credit and accumulate debt in its own name.

Independent Entity

An LLC can accumulate debt in its own name, just like any independent business entity. The amount of debt it can accumulate is only limited by the amount of capital and credit it can secure.

Pass-Through Taxation

Unless an LLC elects to be taxed as a corporation, it is considered a "pass-through entity" by the Internal Revenue Service. This means that the LLC is not taxed by the IRS. All profits and losses are passed through to the LLC owners, called members, to be recorded on their personal income tax returns. There is no limit to the amount of debt an LLC can accumulate and report on its books, thought that debt is eventually applied against income. If debt exceeds income, it becomes a loss. Profit and loss are allocated to the LLC's members at the end of every year.

Loss

It's likely a mischaracterization to think of an LLC as reporting debt. It accumulates debt and reports loss. Reporting loss at the end of the LLC's tax year to the individual members is limited by each member's percentage share of the business. Each member is allocated the portion of profit or loss that coincides with his membership interest. There is no limit to the amount of loss a member can report on his individual tax return.

References

• Business.gov: Limited Liability Company
• FindLaw: How LLCs Are Taxed
• IRS.gov: Limited Liability Company (LLC)

Resources

• SCORE: Business Tools
• U.S. Small Business Administration: Small Business Planner
• ABA Legal Guide: Forming and Operating a Small Business