Capital account
The running balance of each member's economic stake in the LLC, tracked for tax and distribution purposes.
Definition
Capital account is each member's running balance of their cumulative capital contributions, plus their share of LLC profits, minus their share of losses and distributions. Capital accounts are maintained per member and tracked over the life of the LLC. They determine each member's tax basis and entitlement to distributions on liquidation.
Context
Capital account maintenance follows IRS Treasury Regulation rules under § 1.704-1(b). Multi-member LLCs need careful capital-account tracking.
Example
A member contributed $20,000 and was allocated $8,000 of LLC profit in Year 1, with no distributions. Their capital account at end of Year 1 is $28,000.
Common pitfalls
- Capital accounts can become negative when members are allocated losses beyond their contributions; this affects basis for tax purposes.
- Capital account maintenance is technical; engage a CPA for multi-member LLCs.