Capital Investment

Renax

How much capital do you have invested in your businesses? (I am referring mostly to small businesses).
When I started the business back in June of this year, I transferred $5,000 of my personal funds to pay some initial expenses for building materials, tools, etc. My CPA told me to treat that amount as a loan to corporation. Very soon I started generating enough revenue and obviously took that $5,000 back. Now, I hear from another CPA that I have to have capital invested in my corp or otherwise I cannot say that I owe it . Hmmm... So I don't get it: does that mean that I should have taken those $5,000 as a salary and paid taxes on it? Or just kept it in there? But why? What's the point?

Double-A

Go back and talk with your CPA. This is a complicated subject, but to answer your question, yes.

You can take the repayment, but must claim as personal income or capital gain. If this was done in 2006, talk to them about how to structure the repayment to avoid losing your investment to taxes.

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New York Times, July 20, 2006

RobertWilber

you and the corporation are 2 separate legal individuals.
If you created a proper debt instrument, then there is no issue about repayment of the loan to you by the corp. Only taxable money would be interest paid. There is no gain.
You are the sole stockholder. You own it.
Just remember to document the whole thing properly.

maverick17

Who owns it if you dont?

Doesnt make sense to me.

If you are an S-corp you have to have something to show you paid for the stock I guess, but if you issue 10 shares at $1 each then you still own the corp. If you are taking the $5k as return of principal you would need to have some ownership to offically take dividends, i suppose. Otherwise the corp would own itself, but that would be impossible for an S-corp.

my .02

Gordo

Cash contribution= your personal $5k you invested in the corp.

Cash distribution= the $5k you are paying back.

Use this terminology with your CPA.

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Looks like some pros were here.

RobertWilber

Doesn't have to be cash distribution.
Was the $5k a loan to the business, or capitalization?
If it is a loan repayment AND YOU OF COURSE WROTE A NOTE FROM THE CORPORATION TO YOURSELF AS AN INDIVIDUAL FOR THE LOAN, then there is no distribution or gain.
The finance company doesn't pay tax on the principal you repay.

lrombes

I think you may need to pay yourself some interest. I believe that that the IRS is looking at no-interest loans? I doubt that the interest gain would be significant based upon the small amount and term of the loan. Again talk to your CPA and ask more questions. After all you are paying him/her.