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Old 13th June 2006, 11:25 PM   #1
1LOW8TE
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Default Questions: Sole Proprietor Financing

I've opened a checking account for my small business. I have a tax ID# and a DBA... I have some extra money that I want to deposit into my account. How does the IRS look at this deposit? It will come from my personal savings to my business account. I'm saving money so I can buy future equipment and since my business is not creating any revenue yet I've been using my personal money. Will I get taxed on this? Any help would be great.

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Old 14th June 2006, 11:42 AM   #2
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I don't think so. Since you are a sole prop, you are giving money to yourself. There is no tax losses because of that. Its a personal contribution to the business. Probably best to check/verify with an accountant regarding how to handle your personal contributions to your business.

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Old 14th June 2006, 06:51 PM   #3
1LOW8TE
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Thanks for the info.

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Old 12th October 2006, 02:42 PM   #4
Ilya
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Default paying Dow&BradStreet

If I make a paymnet to them from my personal accoutn, will that be tax deducted? Just started here.....

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Old 1st November 2006, 10:59 PM   #5
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I strongly suggest you to incorporate your company because your current company sturcture gives you no legal protection. This is very risky regardless of what industry you're in because you just won't know what would happen when you're in business.

Once you've separated yourself from the business, you can sign a promissory note and lend your own money to the company. The repayments are treated as expense and are tax deductible.

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Old 2nd November 2006, 12:10 PM   #6
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Default How about a LLC?

An LLC is a nice hybrid between incorporating and sole proprietorship. The LLC gives you a layer of legal protection against lawsuits arising from the lawful operation of your business. It also allows taxes on your business activities to pass through to your personal tax return (rather than having you file separate returns for yourself and for your business). I recently converted my sole prop into a LLC for these same reasons. Your mileage may vary.

Note that, as with incorporating, an LLC does NOT protect the business owner(s) from lawsuits arising from illegal activity.

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Old 2nd November 2006, 03:10 PM   #7
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I agree, specifically regarding the liability protection 'that is not provided' andrew. While I understand what Meg is saying is commonly accepted and often the standard line within college textbooks. Has anyone witnessed protection of liability occur first hand because of incorporation? one person?

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Old 9th December 2006, 01:23 PM   #8
Jennifer Thieme
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Quote:
Originally Posted by 1LOW8TE View Post
I've opened a checking account for my small business. I have a tax ID# and a DBA... I have some extra money that I want to deposit into my account. How does the IRS look at this deposit? It will come from my personal savings to my business account. I'm saving money so I can buy future equipment and since my business is not creating any revenue yet I've been using my personal money. Will I get taxed on this? Any help would be great.
Sole proprietors are never taxed on personal money put into the business. Likewise, personal money withdrawn from the business is never a write-off. Both types of transactions are called Owner's Contribution, or Owner's Draw, respectively. They affect the Equity section of the balance sheet, not the Profit & Loss statement.

If you transfered the money electronically from the personal account to the business account, it will very easy for the IRS to verify that the transfer was indeed personal funds, and not sales-related funds. Both statements will show the same transaction - one as a withdrawal, and the other as a deposit.

If you transfered the money in some other manner, just make sure that you can justify it clearly, in the event of an audit.

As far as the suggestion to incorporate.... conventional wisdom normally suggests that you wait until your revenues can justify the added expenses with incorporating:

1. Tax returns that must be professionally prepared for corporations, and these fees are about $800/year
2. More accounting fees, since your books must be in tip-top shape
3. More accounting fees, since the business funds must clearly be separated from personal funds. Comingling of funds is one indicator that the person is not really operating a corporation, and could damage the "corporate shield" protection of liability.

Talk to a couple CPAs before incorporating - get a couple different opinions. It's not always the best thing, initially.


Last edited by Jennifer Thieme; 9th December 2006 at 01:31 PM.
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