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ouroldfarm
07-13-2010, 08:17 AM
I'm new to this, and I've made the decision to keep working at my day job while building the company. I really don't want to go into debt right now in order to build the business, and I don't really need to as long as I can keep my job. Later on I would be willing to finance some capital expenditures in order to expand the business, but not until we have a good list of customers.

My question revolves around capital for the business.

If I'm providing my personal income to the business is that considered income as far as the business is concerned? Also if I make a "donation" of my personal property as capital to the business, for instance like a tractor or other piece of equipment, is that considered income for the business that will need to be reported to the IRS?

For example

1) if I put $10,000.00 of my own money into the company account is that income the company will have to report on its return?

2) if I give a piece of equipment with a FMV of $10,000.00 to the company is that considered income that the company will have to report on its return?

Also, how does this apply to fixed assets like buildings, water wells, land, etc. that were mine, but are given to the company, or perhaps leased by me to the company?


Thanks.

Steve

Evan
07-13-2010, 08:23 PM
As an S-Corporation, you need to fund the business by contributing equity. Equity is not income, so therefore, it's not taxable to the corporation (nor is it deductible to you).

If you put $10,000 cash into the business, you have $10,000 in assets, $0 in liabilities, and $10,000 in equity. You have no income or expenses.

If you put equipment into the business, such as a tractor, it should be contributed at it's adjusted basis and NOT fair market value. It doesn't matter that your $2,000 (cost) tractor-fixer-upper is now worth $10,000 even though you put $3,000 worth of parts in (and a lot of labor). That can be a bit more tricky to calculate, though "cost" is probably a bit more reliable than "fair market value" if you were to contribute an asset (though "cost" isn't right either).

As a general rule, I would also recommend to never put any asset into an S-Corporation that appreciates in value. Stick with things that depreciate or deplete.

ouroldfarm
07-14-2010, 01:08 PM
Thanks again for your input, Evan. I'll re-read the farm tax publication and the taxable income publications with this astute knowledge in hand.

I've also got an appointment with an accountant who does lots of farm books.

Regards,
Steven

Evan
07-15-2010, 07:49 PM
Best of luck. Farms are not my specialty, so I am sure one that works with them will be best suited for your needs.