Except for some differences in terminology, the system of accounting for an LLC is much like that of more familiar business structures. The LLC business structure is relatively simple and no harder to set up than any other entity type for someone with a basic understanding of accounting or bookkeeping principles.
Choose Your Software and Set-up a Chart of Accounts
The first step in accounting for an LLC is to determine how your LLC will be treated for tax purposes. One of the main advantages of an LLC is that it can be treated as a sole proprietorship, partnership or corporation for tax purposes. The business owner must make an election regarding tax treatment at the formation of the company. Once this election is made, accounting for an LLC becomes easier because you are really treating it, for the most part, as one of the more common (and familiar) tax entities. As a general rule, you don't tell your accounting software (such as Quickbooks) that you are an LLC. Rather, you select the entity type that your LLC will be emulating. For example, if you're a one-owner LLC that hasn't made an election to be treated as a corporation, tell your accounting software that you're a sole proprietor. If you're a multiple owner LLC that hasn't made any special elections, tell your accounting software that you are a partnership. And if you have made an election to be treated as a C corporation or an S corporation, tell your accounting software that's what you are (a C or an S corporation).
Once you have chosen your LLC business structure, set up a chart of accounts within your accounting software. For all practical purposes, the chart of accounts for an LLC is the same as for any other business. You'll have revenue and expense accounts, as well as asset, liability and owner's (or member) equity.
You are now ready to begin recording the transactions of your LLC. Checks written, income received, equity placed in the business or withdrawn (from member's equity), all need to be recorded in your accounting software. If your LLC has pass-through status (e.g. income will pass through and be taxed on your individual tax return), you'll need to deposit federal and state employment taxes just as you would have if you were a sole proprietorship. The tax form you fill at year-end will once again depend on the tax treatment you have selected. Depending on your election, you will be filing a Schedule C (for self-employment), 1065 (partnership tax return), or 1120 (C corporation return). While the basic bookkeeping for an LLC can be relatively simple, getting professional help with taxes is generally a good idea. In many cases, expert tax advice more than pays for itself through the money you save.