@tschapira wrote:
Please advise or let me know if I'm missing a concept/step. TYVM!
You are missing the concept that paid-in-capital (or contributed capital) essentially represents your equity stake in the company.
Net income enters the taxability matrix regardless of how you want to otherwise treat it and you can either withdraw (distribute) the net income or use it for business purposes (i.e., keep it available for business use, which will increase retained earnings in an S corporation or increase partners/members capital accounts in a partnership or LLC).
Regardless, you cannot deduct paid-in-capital from net income to reduce, or eliminate, your tax liability.
