Go to Jeff Salisbury LWGate Home Page.From: "Steve Foulks" <steve_foulks@up.bresnan.net>
Subject: Re: Tax considerations in financing business
Date: Wed, 11 Nov 1998 00:59:21 -0500
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>From: "Melinda Johannes" <mbjohannes@hotmail.com> >Subject: Tax considerations in financing business > >I've got the cash necessary for my startup, but am considering >different ways to fund my business. > >I can either pay in the capital, just transfer the cash from my >personal accounts to the business books in exchange for owner equity, >or I can loan the S corp the cash, in which case the business can >take a write off for the interest expense, and I'll claim interest >income on my personal return, right? Assuming you are going to establish an S corporation, then the lending approach is meaningless. Because an S corp. is a tax "conduit" (i.e., it tax attributes flow directly to the owners) the interest you earn from the loan will be offset by your share of S-corp separately stated interest expense. >What other considerations are there in determining whether to >loan or "give" my new business capital? Your question should be, "How should I best organize my business from a tax (or wealth maximization view)?" Should I use an S, or C Corp, a sole proprietorship, a LLC (limited liability company), a trust, etc.? There is no easy answer. It is a function of your particular context and your view of the business future. You need to consult a local CPA who is knowledgeable in business formation tax issues. Steven M. Foulks, CPA, CFP Professor of Accounting Northern Michigan University http://www-instruct.nmu.edu/business/sfoulks/ - -
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