Originally Posted by 1LOW8TE
I've opened a checking account for my small business. I have a tax ID# and a DBA... I have some extra money that I want to deposit into my account. How does the IRS look at this deposit? It will come from my personal savings to my business account. I'm saving money so I can buy future equipment and since my business is not creating any revenue yet I've been using my personal money. Will I get taxed on this? Any help would be great.
Sole proprietors are never taxed on personal money put into the business. Likewise, personal money withdrawn from the business is never a write-off. Both types of transactions are called Owner's Contribution, or Owner's Draw, respectively. They affect the Equity section of the balance sheet, not the Profit & Loss statement.
If you transfered the money electronically from the personal account to the business account, it will very easy for the IRS to verify that the transfer was indeed personal funds, and not sales-related funds. Both statements will show the same transaction - one as a withdrawal, and the other as a deposit.
If you transfered the money in some other manner, just make sure that you can justify it clearly, in the event of an audit.
As far as the suggestion to incorporate.... conventional wisdom normally suggests that you wait until your revenues can justify the added expenses with incorporating:
1. Tax returns that must be professionally prepared for corporations, and these fees are about $800/year
2. More accounting fees, since your books must be in tip-top shape
3. More accounting fees, since the business funds must clearly be separated from personal funds. Comingling of funds is one indicator that the person is not really operating a corporation, and could damage the "corporate shield" protection of liability.
Talk to a couple CPAs before incorporating - get a couple different opinions. It's not always the best thing, initially.