How do I classify money I put into my own business for tax purposes?


2

S-Corp. I am currently the only shareholder. Doing taxes for my first year. How do I properly account for money I've put into the business both in my accounting system, and for tax purposes?

Is it income?

Is it a loan?

Seems like it should be considered a loan since (a) the goal is to generate a return, and (b) it's not income from something that the company sold to me.

Tax Investment Accounting

asked Mar 8 '11 at 13:09
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Jefflunt
113 points

2 Answers


5

Cash that you put into your corporation can be assigned to either a Capital Stock account or a Loans Payable (from the corporation's perspective) account. The choice of which one is pretty much up to you.

If you go with Loans Payable, the corporation can pay you back at some point.

If you go with Capital Stock, you will receive additional shares in exchange for your investment, but will not be paid back by the corporation.

answered Mar 8 '11 at 13:26
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Brandon King
959 points
  • So neither is considered income from the corporation's perspective. It's either a purchase of additional stock, or a loan which much be paid back. Makes sense. Thank you. – Jefflunt 9 years ago

1

I agree with the answer above, in post 2.

There could be different tax consequences depending on which route you take. If it's capital stock, you could get capital gains tax treatment if you hold the shares for an extended period. There would also be securities laws restricting any transfer of those shares for a set period. If it's a loan, if the loan isn't repaid, you'll get hit with cancellation of indebtedness income. There's a lot to the story.

answered Mar 9 '11 at 12:15
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User6492
1,747 points

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Tax Investment Accounting