LLC accounting - how to do 'return of capital'?

Congratulations! You're partially correct. However, the initial investment should have been captured on your tax return as either a business lost or capital gain for that tax year. Therefore, once you receive the $5000 from the business, it is treated as capital gains. You my look upon this as having your investment returned to you but IRS does not view it in that manner. It is income from a business which you are an officer therefore, it is capital gains and will be taxed as such.