I have a sole proprietor business and put my own capital into the business. where do i show that capital investment on my schedule c?

[char2]

i started a sole proprietor business in 2014 and put my own capital into the business. where do i show that capital on my schedule c?

[PatriciaV · Accepted solution]

Your capital investment is your equity in the business. Equity is not reported on Schedule C, only income and expenses. If you funded your business out of your "capital", then your contributions are reflected in the expenses and assets in the business (money spent on your business).

[fanfare]

If you invested assets (computers, furniture , machinery) you have to depreciate it. Each category has its own depreciation schedule.

[candy_conley6]

 Is my contributed capital considered income to my sole proprietor business?

[Carl]

The IRS considers a sole proprietorship or single member LLC to be a disregarded entity. In other words, the IRS does not recognize your business as a separately taxable entity. Income earned by the business is "exactly" the same as income earned by you. Therefore, you can't have a "capital investment" in yourself.

You may have what is referred to as "startup costs". Startup costs are claimed in the first year you are "Open for business" and it flat out does not matter in what year those startup costs were incurred either. Basically, startup costs are the money you have to spend before you can open for business. For example, you may need to purchase tools and equipment for your business, pay all sorts of business registration fees to your town, city, county, parish and state, or purchase some type of liability insurance. All of these expenses are things you *HAVE* to pay for before you can put that "open for business" sign up.

So startup costs are claimed in the first year the business is open. For that first year you can only claim a maximum of $5000 of startup costs, or your first year's taxable business income earnings; whichever is *LOWER*. Anything over that gets amortized and deducted over the next 15 years.

[Critter]

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@candy_conley6 wrote:

 Is my contributed capital considered income to my sole proprietor business?

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NO ... it is NOT income.  Seed money from the business owner is NEVER considered taxable income ... why would you even want to pay income taxes on money you simply moved from your right pocket to the left pocket of your pants ?  

[jamesah108]

I understand that capital contribution as a sole-prop is not income and is, as you mentioned, just moving money from your left pocket to your right. But my question is this: do you need to show how much capital you've contributed on your taxes, even if it's just for reference? Let's say you put $3000 cash in your business account, money that came out of your own pocket. How does the IRS know that money wasn't income?

[VolvoGirl]

No.  If you are filing schedule C for self employment or sole proprietor it is a disregarded entity.  You personal bank accounts and business accounts are all your personal accounts.  It really doesn't matter which account you deposit the income or pay the expenses out of.  It's all yours.  

[carlawestbrook]

I am in the process of doing my taxes and needed to know how I record a $79,000 equity contribution to my S corporation tax  return. do I add it as income? 

also, do i enter loan fees to my returns as an expense? 

[Critter-3]

NO ... it is NOT income ... it is loan from shareholder.

Loan fees paid by the company on loans they hold are deductible expenses to the corporation. 

Interest paid by the company to you is recorded on your personal return as interest.