Discussion:New Business Startup
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Discussion Forum Index --> Tax Questions --> New Business Startup
| 20 June 2007 | |
| Hello to all,
Me & a friend of mine are in the process of creating a self serve car wash. I just wanted to get different view points from people on here who are pretty bright. The business will be under an S-Corp entity. However, what I am struggling on whether is when we get the business loan, on the books of the S-Corp should this be record as a liability or equity? Reason being if distributions are taking I know there has to be a basis since any distributions over basis are a capital gain. Both he & I will take a small salary a month but plan on taking distributions as well. I was thinking if I use logic accounting it would be recorded as a liability, but shouldn't equity show our 50/50 basis? | |
| 20 June 2007 | |
| be definition a loan owed is a liability, only money you put in (or leave in) is equity. | |
| June 20, 2007 | |
| And you've got disclosure issues. If you try to hide debt by calling it equity, you're misleading banks or whoever you get credit from. That's fraud, you don't want to go there. If the loan is in the name of the corp, then it has to be shown as loan. If it's in your personal names, then you do have a choice, but classically, we show it as a loan on the corp books and make the payments directly to the bank. Since it's in your name, it counts for basis anyway, but you've disclosed the corp debt as well. | |
| 20 June 2007 | |
| You'll want to talk to an accountant & lawyer in your state, but also look into creating an an LLC rather than an S-Corp (even if you then elect to have the LLC taxed as an S-Corp). There are generally less ongoing legal costs associated with an LLC. | |
Taxcurmudgeon (talk|edits) said: | 20 June 2007 |
| Brian, I get cranky when people post messages but don't fill out their profile. I like to know something about the person who is asking for technical advice. So please fill it out.
I also get especially crabby when I read bad English. Please, "Me and a friend of mine are ..." Think about it, Say this to yourself. "I am ..." "My friend is ..." Sounds right. But "Me is ... " doesn't sound right at all. I feel better now - maybe. | |
| 20 June 2007 | |
| Taxcur, you'll be cranky 100% of the time if you get too bent out of shape about poor grammar around here. But, hey, we could all use some editing from time to time.
Brian, the issue of whether or not the debt is shown on the balance sheet as debt or equity depends on whose debt it is (or "to whom the debt belongs" for Taxcur:)) If the bank loans you the money and you put it into the corporation, then on the balance sheet you should show either loan from stockholder or equity. But if the corporation borrows the money from the bank, then there is no wiggle room, it belongs as a liability on the balance sheet, not as equity . | |
| 20 June 2007 | |
| That does it. I say no more free advice to non-tax professionals! We are only contributing to the problem by responding here. For example, Brian (above) now probably thinks he has enough knowledge to do this on his own. In three years, he'll be running to one of us with one big mess! One of us will fix it, bill him for the time, and then he'll complain about the amount. We will eventually settle on a lower amount just to get some money out of the deal and send him on his way. | |
| 21 June 2007 | |
| But, hopefully, by then he'll use proper grammar when speaking or writing to us. | |
| 21 June 2007 | |
| Why is this business unders a S Corp, I am assuming you own the real estate you put the facility of the car wash. Any real estate should be kept out of a coporate structure, maybe think LLC. | |
| 21 June 2007 | |
| Well I am a tax learner not a tax professional yet. I am 23 going to grad school trying to learn as much as I can while am working at a small CPA firm. As for cranky head about grammar, I am not writing an article to publish. As for San Diego person, sounds to me like you better clients else you wouldn't feel that way. Nobody will fix whatever I get myself into, because I will do it!!
Larry that’s a point I didn’t know, I'll look into what you mentioned about the real estate being kept out of a corp structure. Thanks | |
| 21 June 2007 | |
| Brian, while you think you may not be writing to publish, you just did. Consider how "Me and a friend of mine" makes you sound. Your ability or inability to communicate properly will add to or detract from your professionalism as well as your earnings ability. Good luck with your car wash business. | |
| 21 June 2007 | |
| Advice: Consult with an experienced person in these matters. I would get a referral from someone who has set up a business. Interview a few professionals, and choose one that has done it before and can answer your questions. What they say should make sense. It will cost anywhere from $800 to $2,000 to set up, and up to $1,000 a year after that to prepare the tax returns. Don't assume that the highest cost is the best. I knew someone that paid $5,000 for a person to incorporate her business, and there were all kinds of problems -- It was an S corp with a "Silent Partner" (unequal distributions and passthru of income). It was crazy, and I wouldn't fix it.
2) It sounds like you are getting into the tax profession, so after it has been set up and a couple of years have been filed, start preparing the returns yourself and save money then. Sounds like a big deal, and with a partner to boot. I wouldn't cut corners on the foundation of the business. Good luck | |
| 21 June 2007 | |
| meant to say "I wouldn't cut corners"
couldn't figure out how to edit | |
Taxcurmudgeon (talk|edits) said: | 21 June 2007 |
| Gen Y all the way. Re-read Jim Dugan's observation about communication. | |
| 21 June 2007 | |
| just figured it out. I normally wouldn't correct, but the meaning is so different.... would verses wouldn't | |
| 21 June 2007 | |
| I didn't know that you can edit anyone's posts. So, I guess if I say something wrong here, then I'll blame someone for editing my correct answer. Ha Ha. | |
Bottom Line (talk|edits) said: | 24 June 2007 |
| Brian - please visit with an experienced accountant and/or attorney about this arrangement. I have seen too many bad things happen when friends go into business together. I strongly recommend a buy out agreement and putting on paper your understanding about who will make which decisions. Example - what would you do if your business partner was rendered a vegetable in a car wreck (God forbid) or found some hot young thing and decided to take all the money and run off to the Bahamas? | |
