How to Calculate a LLC Basis
A member's basis -- or ownership stake -- in a limited liability company is a key concern when it comes to the tax implications of income and distributions. An LLC classified as a partnership or S corporation is a pass-through entity. This means you pay income taxes on your share of the business' profits each year, regardless of whether that money is paid out to you or kept in the company. When you do receive distributions, or eventually sell your LLC interest, your basis determines how much of that money is taxable.
Generally, your LLC basis starts at the money (or value of assets) you put into the business or pay to acquire it. Going forward, it increases by any additional financial contributions you make to the company and your share of the LLC's profits. Your basis decreases for each distribution you take, But on the bright side, those distributions come out tax-free. For example, say you put in $50,000 to start the LLC, make $30,000 in the first year and receive a $25,000 distribution. Your basis is $55,000.