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How to reflect personal investments into my LLC?

MattCMattC subscriber Posts: 10
edited July 2008 in Accounting and Financial Management
Hi Everyone,
 
Last year I spent about $3000 of my own money (on personal credit cards) for costs related to forming my business and LLC.  However with no income I couldn`t write anything off in 07. 
 
This year I have a business credit card and checking account so now I can keep the costs separate.  I transferred $2000 a few weeks ago and plan on transferring in about $6000 in a week. 
 
How should I document this right now so that I can take out $11,000 of business income as loan repayment and therefore not-taxed?  Can I write up a simple loan agreement form? Between myself personally and the business even though we`re one and the same? 
 
Thanks in advance!
Matt
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Comments

  • MattCMattC subscriber Posts: 10
    Bump...  any help with this?
     
    Also, was I supposed to fill out a form declaring my losses from last year or can I just file everything (07 losses and 07/08 profits and losses next year?)
     
    Thanks!!
     
    Matt
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  • glgcpaglgcpa subscriber Posts: 0 Member
    Yes, if you intend the money you gave your business to be a loan, then you should have loan documents including the payment schedule and interest rate and your business should pay you according to those documents.
    You can only deduct losses to the extent of your basis.  Your basis is the amount you paid for your stock (if any) and additional paid in capital (if any) and the amount that the company earned (if any) less any distributions you made to yourself (if any).
    The year that you start your business, which sounds like it may have been 2007 - you don`t need income, just that you were open for business - you can elect to deduct up to $5,000 of start up costs and $5,000 of operating costs the first year (some exceptions apply).  If done properly, anything disallowed would carryforward to 2008.
    If you started your business in 2008, then you will deduct your expenses in 2008.
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  • MattCMattC subscriber Posts: 10
    Tyra - thats what my former accountant told me as well.  he said that i can claim my 2007 expenses in 2008, and to try and claim expenses would basically be asking for an audit.
     
    Gina - Thanks so much for your response!  I actually wasn`t technically open for business in 2007 (I`m still not, my business will technically start in about 5 weeks.) But I incurred start-up expenses in 2007 .. like LLC formation costs, notice of LLC formation in newspapers, a new computer, business related travel.. things like that.
    MattC4/14/2008 4:25 PM
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  • glgcpaglgcpa subscriber Posts: 0 Member
    If you are in business, whether or not you have sales, but your expenses are legitimate business expenses then there is no reason not to show your loss and take advantage of that.  Having said that, if you do not show a profit within 3 years then the IRS takes the position that you were never in business to make a profit; thus denying your expenses in excess of income and treating your business as a hobby.  Just because the IRS takes this position does not mean the IRS is correct.  If you have a business plan that projects profits, but not until the 5th year, and you have hit all your other sales, customer volume, expense goals, then you may have a case.
    If your business has not started, meaning you have not opened in a fashion to take on a customer, then the deduction of your expenses should be delayed until you do open, even if that`s in another tax year.
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  • MattCMattC subscriber Posts: 10
    Ok Great, thank you so much Gina!  I was worried that I got wrong info and I wouldnt be able to write off the $4k or so of expenses I incurred last year.. You`ve been such a help..
     
    I will keep you in mind when I look to outsource some of my bookkeeping!
     
    MattC4/15/2008 10:17 AM
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  • glgcpaglgcpa subscriber Posts: 0 Member
    You`re welcome Matt - and thank you!
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  • bobbbobb subscriber Posts: 0
    Hello, I am a new in the world of franchise and I need help. I have two partners and we formed an LLC. I am only being allowed to sign the sublease as an individual but I want to operate the store using the LLC. How can I operate the store using the LLC and protect my self behind the shield of the LLC when the sublease and the Franchise are on my name? I also need to operate as an LLC because I have other partners. Can anyone help me with the experiences they have in LLC`s or at least point me in the right direction? The franchise is Subway,
     
    Thanks!
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