Tax

[IATM]

I recently started A business with 8 other owners.  I am collecting seed money through cash app. Then cashing into my personal account monthly and writing a check from my personal depositing into the business account.  Is this legal.  Is there a better way when owners are in multiple states.  Do we have to file taxes for seed money raising?  Please advise.

[tagteam]

You should seek local legal counsel in your area who is familiar with business entities and taxation.

https://www.avvo.com/find-a-lawyer

[rjs]

Your business is a partnership. You need to have a written partnership agreement. You need a lawyer who specializes in business law to put together the partnership agreement for you.

Passing the partnership's money through your personal bank account might technically be legal, but it creates confusion and invites IRS investigation (and possibly legal investigation) because it makes it hard to follow the flow of the money, and can make it hard to determine how much each partner invested. It makes it look like you might be laundering money or otherwise trying to hide something. Keep the business funds and your personal funds completely separate. And get an accountant to show you how to set up proper bookkeeping for the partnership. The accountant can also show you how tax returns for a partnership have to be filed and answer your questions about taxes.

[tagteam · Accepted solution]

I will just add that the default here is to the entity being a general partnership and that is most likely the type of entity you do not want (general partners in a general partnership are liable for all debts and judgments against the partnership and, in certain instances, actions of the other partners).

Hence, you need to consult with an attorney who can suggest a more appropriate business structure.

[Anonymous]

since there is a business a/c the checks should be made out to the business.  should problems arise you're asking for a lot of grief which could include ending up in court.   not only do you need a lawyer but also a tax pro so you know the accounting/bookkeeping and any other requirements.  

[Carl]

I am collecting seed money through cash app. Then cashing into my personal account monthly and writing a check from my personal depositing into the business account.

Bad move. That can quite easily raise flags with suspicions of money laundering. Stop it now.

First, the 8 of you together need to seek the legal expertise of a business attorney and at tax professional of some sort. One thing a legal professional will tell you, is that the first thing to do upon completing the partnership agreement is to open a business bank account. Then all money pertaining to the business is run through that account. All seed money, all business income and all business expenses run through that account first, with "NOTHING" in the middle.

[IATM]

How do we deposit the seed money into the business account being that the owners are in different states.

[IATM]

I am part of an S-Corp, so does that make a difference to how we are raising the money.  We it be advised to have everyone send me a check made to the company and I deposit it.

[tagteam]

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@IATM wrote:

How do we deposit the seed money into the business account being that the owners are in different states.

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That would not present an issue if the account were established in the name of the entity with the EIN of the entity (which you should have - see link below).

https://www.irs.gov/businesses/small-businesses-self-employed/how-to-apply-for-an-ein

Subsequently, the members, partners, or shareholders (as the case may be) can write a check made payable to the entity or arrange for a direct deposit from their accounts to the account of the entity.

Again, you need to consult with legal counsel as well as tax and financial professionals.