Transferring from one LLC to a New LLC

I am a member of my brother's LLC, he is the owner. I have decided to take a portion of the money I invested in his LLC and form my own. Will I be taxed on this exchange?

If you are in the US, LLCs are classified by the IRS for tax purposes as either:

• An S corporation
• A C corporation
• A sole proprietorship
• A partnership

Depending on which of these classification you guys elected for depends on how you are taxed. If your LLC is an S corp, a sole proprietorship, or a partnership then you always pay taxes annually on any net business income, on your personal income tax return.

Only for the case of a C corp do you pay taxes upon selling the investment.

So the answer is, it depends. If your LLC is taxed as a C corp, and made profit since your investment, then you will be taxed at the capital gains rate.

If you are taxed as any of the other entities, then no, you won't be taxed on a disbursement of funds, you are taxed annually on all profit on the personal income tax return. You will need to speak to an accountant about this, but I think if you remove your investment, you will need to properly document it so that you are only taxed on any profits made from the beginning of the year until when you removed your investment.