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Thread: Accounting For Organizational Costs

  1. #1

    Question Accounting For Organizational Costs

    Hello! I just recently formed an LLC. As in, last week. I haven't even made a single dime yet, but I want to be sure I handle the books correctly. To form the LLC, I paid about $500 in fees (state filing fees, legal fees, etc). I paid this out of my own pocket because my business didn't have a bank account at the time. Banks require the LLC to be legally organized before opening an account.

    How do I account for this $500 on the books? I wouldn't think it would be considered a cash contribution. Is it considered a capital contribution worth $500? Or should it be considered an expense?

    Thank you for your help!

  2. #2

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    I just realized that a couple years ago, when I tried starting a different LLC, I had come here to ask a question regarding personal credit card use for business expenses... the last response on that thread mentions setting up a liability account called "Shareholder Loan"... use that to effectively record that the business owes me that money back. Would it make sense to do the same with the organizational costs? That would then track it as an expense (liability). I then, effectively, loaned the $500 to the business in order to organize it?

  3. #3
    Mr. Tax Man
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    Member Loan (liability) or Member Contribution (equity) would suffice. You'd create a journal entry by Dr. Organizational Costs $500 / Cr. Member Loan/Equity $500. Keep the documentation on file like any other expense
    Small Business CPA
    "A tax loophole is something that benefits the other guy. If it benefits you, it's tax reform."

  4. #4

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    Ok great. Thanks for your help!

  5. #5

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    Organizational costs are incurred whenever a subsidiary is created, so these costs can be incurred repeatedly over the life of a parent company. Depending on the applicable tax rules, it may be possible to capitalize organizational costs, in which case they are amortized for tax purposes over a period of time.

    --
    Lewis

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