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S-corporation Start Up Costs

Corporate Law Discussions

S-corporation Start Up Costs

Postby Aodhhan » Fri Dec 09, 2016 1:54 pm

s About Taxes)/S-Corporation start up costs Advertisement Expert: Richard Fritzler - 3/23/2004 My Wife and I are starting our own Electrical business and have spent personal funds on purchasing a computer hardware/software, vehicle, licensing and misc supplies ready to open the business and will do all of the bookkeeping myself. My question is how to handle these costs as far as the balance sheet and income statement are concerned. My approach is to set up the computer and vehicle and amortize these and expense the misc supplies, licenses but I am not sure of what the offset would be(credit side of the entry)? I would like to be reimbursed for these expenses over the course of the next year with a reasonable rate of interest, one other question is do I need to have a formal agreement between the business and myself to spell out the loan amount, interest etc that will be reimbursed some time down the road? Also how do we handle the Officers salaries, are they an expense of the business or do we set these up as officers salaries and run these through the Balance sheet? Any help you could provide would be greatly appreciated. Thanks
Aodhhan
 
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Joined: Sat Feb 01, 2014 7:10 am

S-corporation Start Up Costs

Postby harimann » Sat Dec 10, 2016 8:49 am

s About Taxes)/S-Corporation start up costs Advertisement Expert: Richard Fritzler - 3/23/2004 My Wife and I are starting our own Electrical business and have spent personal funds on purchasing a computer hardware/software, vehicle, licensing and misc supplies ready to open the business and will do all of the bookkeeping myself. My question is how to handle these costs as far as the balance sheet and income statement are concerned. My approach is to set up the computer and vehicle and amortize these and expense the misc supplies, licenses but I am not sure of what the offset would be(credit side of the entry)? I would like to be reimbursed for these expenses over the course of the next year with a reasonable rate of interest, one other question is do I need to have a formal agreement between the business and myself to spell out the loan amount, interest etc that will be reimbursed some time down the road? Also how do we handle the Officers salaries, are they an expense of the business or do we set these up as officers salaries and run these through the Balance sheet? Any help you could provide would be greatly appreciated. Thanks
harimann
 
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Joined: Sat Oct 06, 2012 3:39 am

S-corporation Start Up Costs

Postby Dyson » Tue Dec 13, 2016 5:50 pm

The IRS "encourages" you to consider your initial invest as capitalization. By encourage I mean they can reclassify loans from stockholders to capitalization at their leisure.

Of course some moneys can be considered a loan. But generally, it will be your purchase price of the stock. But it may be an argument with the IRS.

And what will it get you? Well, if you loan the money to the corp, and they pay it back, they get to write off the interest they pay you. BUT, you have to declare it as income, and pay the taxes on it. That is a zero sum gain. If you take the money back out as a return of capital, you wouldn't pay taxes on the bsae amount, but your BASIS in the company gets reduced, again a zero sum gain.

Let's assume that capitalize the initial amount. You can write off most of the items you listed Against Profits. If you are making a profit. One of the problems with the sub-s is that it requires a distribution of the loss, and you may not be in a situation where you can utilize a loss.

A c-corp would hav given you far more flexibility, and if you are profitable, far lower taxes.

The offset to expense is income.

Formality is always important. If you are trying to classify it as a loan, you will need a note, and interest rate, and an intent to repay.

If you accept the expectation that your initial investment is capital, you will need to document it through the issuing of Stock.

Payroll is always an expense for the business. And your payroll will be income to you personally, again, they set eachother off, except that payroll is subject to FICA and payroll taxes, in addition to Income taxes, where distributions are subject only to income taxes.

Richard Fritzler

Call me 800 590-6612
Dyson
 
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