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Wondering how to record donations to my corp

Discussion in 'Accounts and Finance' started by skylaski, Mar 26, 2016.

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  1. skylaski

    skylaski Entrepreneur

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    Hey all,

    I am the sole director/shareholder of a corporation I've created to be a vehicle for my savings.

    I'm wondering what the proper/best way to record my personal contributions to my business checking account.

    Any and all advice is much appreciated. Thanks.
     
    setupdisc likes this.

  2. skylaski

    skylaski Entrepreneur

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    Based on what I know right now the best way to do this is to create and sell myself shares as needed.
     
    setupdisc likes this.
  3. setupdisc

    setupdisc Moderator Entrepreneur

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    You can do that, but you have to be careful due to the way the IRS may see this when you do.

    If you are doing it as a form of withdrawal of assets or funds from your company then you can, but you'll need to report any share of the LLC's profit you receive in addition to your salary as "passive income" on your personal tax return after you do.

    The IRS considers the shares you sell to yourself as a single owner/shareholder as unearned income that is not subject to employment taxes, so you will have to pay income tax on it at the end of the year.

    If it is under a certain amount, you may be able to legally convert it or document it as a gift instead of a transaction or payment, though.

    The IRS does allow a certain amount to be given to or from businesses and individuals as long as it is under a certain amount annually. You may want to explore that option if it is not too large, or if you wish to offset the amount that you want to give yourself by only having to pay taxes on the portion which does not fit as a gift.

    You can find additional information on this from Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550, or from the IRS web site at this link.

    If you make capital contributions to your own LLC, you need to make that clear in writing to where each expenditure and deposit involving the LLC account should be accompanied by written records as to the details of the transaction along with its purpose for your business, and any other important details.

    Being the only shareholder and official of your LLC, it may seem silly to do that...but it's really not. Especially if you want to bring in additional investors later. Your books and record keeping must be accurate and have acute detail of your contributions and withdrawals so that whether there are additional investors or members later or (heaven forbid) an audit, you'll always be on the right track thanks to your paperwork and keeping everything documented: both your personal contributions of capital going to your LLC, and your business or personal withdrawals out of it.

    I suggest to anyone who is setting up an LLC to always invest adequate time and due diligence in obtaining advice from both lawyers and accountants concerning best practices, and any new advantages you may be able to partake of. Having a good CPA or business lawyer, they may be abreast of new laws current to this fiscal year that can help you get around this better than usual (and save you money on taxes and other expenses doing so).

    So you should be ok to buy and sell shares to yourself, but just be very careful about this. Personally, if it were me, I would fill out an IRS Form 883 "Entity Classification Election" and elect corporate tax treatment, and follow that up with placing the LLC’s tax identification number on the Schedule C when filing the tax return each year. Without knowing the extended details of your LLC or formation, I wouldn't be able to offer specifics beyond this.

    Try to keep your personal and business expenses apart as much as you can though, and if it has to be recorded as a contribution in or out from a personal level, be sure to document it like "Skylaski, representing (or on behalf of) of SkyCompany, LLC." to make the clear distinction on your records between it being personal or business related, and how if it crosses over on personal.

    If you can, you might want to bring in at least one more member to your LLC. You can do single member LLCs fine and do what you're doing, but the IRS and other bodies tend to pay more attention to activities of single-member LLCs than they do partner-based ones, even if the partner is silent or uninvolved with most activities.

    Also, your protection and the perception of others from courts to associated businesses will give more credence to your status than if they see it as "just you" on the books by having just one other person. It can be a family member, a spouse, a child over the age of 18, or anyone else as long as they are legally able to be a party to your LLC in that way.

    Part of this is sociological more than business, because it gives the impression that there is more honesty and transparency by having at least one other member whereas there is an "extended possibility" that things may not always be as documented if there is only one person and no one to "check" on the things that you record.

    I would consider all of this with your activities to get your started, but this information is just to help you get started and more clearly understand the advantages and disadvantages of what you're doing and will want to do with your single-owner LLC.

    However, my suggestions on this post is not to be taken as legal advice or any substitute to it. You should either consult a business lawyer who specializes directly in covering your bases specific to your business that you have to ensure that all legal matters are appropriately addressed, or consult with your local SBA (Small Business Association) chapter to get absolute advice and legal support that is specific to the exact business you have today.
     
    T J Tutor likes this.
  4. skylaski

    skylaski Entrepreneur

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    Its a C Corp.
     
    setupdisc likes this.
  5. setupdisc

    setupdisc Moderator Entrepreneur

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    Interesting. I was approaching this from an LLC or Type S standpoint, but being type C you may have more options still (still early in the morning for me though; should have been thinking about it as type C the moment you mentioned shares lol. Some do in type S also, but usually that makes me think of it as a Type C holding)

    I'm curious: Did you start out as an LLC or Type S, or was this always a type C corp so that you could get the venture capital needs, tax advantages, or was it something else initially?
     
  6. skylaski

    skylaski Entrepreneur

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    I started out as a C Corp.

    I created this company to force myself to learn how to operate a C Corp. The corporation has no other purpose right now and I won't have any revenue nor will I be involving anyone else besides myself for a few years. As of right now I'm the sole director/shareholder. My balance sheet and stock ledger are incredibly rudimentary. I have some very fundamental knowledge of accounting (a few undergrad business courses) and plan on pursuing professional CPA/Legal services once I have a business plan worth investing in.

    I'm simply curious as to the best way to record my contributions to the business checking account. I plan on making multiple contributions over the next few years and want to make sure I'm recording it correctly.

    Based on what I've discovered researching/reading on my own, the best way to do this is to create and sell myself shares.

    However, I've also been told that this is taxable income to the corp. I've also been told this is not "income" but "Capital Gains", which are taxable. I've also read that selling shares is a taxable event, but nothing I've read or been told has been very consistent.

    I'm going through form 1120 and its instructions now to get a better understanding of what is required of me when I file.
     
    T J Tutor and setupdisc like this.
  7. skylaski

    skylaski Entrepreneur

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    So I've decided to go with a loan. Since its only a few hundred bucks I'm also not charging interest. Demand loan.

    Debit: Cash
    Credit: Shareholder Loan
     
    setupdisc likes this.
  8. Corazon

    Corazon Entrepreneur

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    If your business is a registered corporation then you may need to have shares of stocks in exchange of your contributed moneyh as your investment. And those shares of stocks will be your means to receive profits in the form of dividends. For an entrepreneurship, you can log that money as additional capital so your accounting will not be messed up. It is not good to put in money without the proper recording for you may need it for tax purposes or future profit distribution.
     
    Peyton White and setupdisc like this.
  9. T J Tutor

    T J Tutor Entrepreneur

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    You should have received a corporate minutes book that identifies distributed shares as well as undistributed shares. You can either increase the value of the shares by investment or you can release additional shares to yourself to mirror the value of the investment.
     
    Last edited: Apr 29, 2016
    setupdisc likes this.
  10. Peyton White

    Peyton White Entrepreneur

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    I totally agree with, Corazon on this.
     
    setupdisc likes this.

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