Is money you transfer from your personal account to your business account considered taxable income for your business?

[danielle-51]

We are a small family business, an LLC,  taxed as a partnership.

If one of us wants to "cushion" our business account by transfering money from our personal account to the business account, how do you record that for tax purposes? or do you even need to apart from recording it the bank register? I wouldn't think it could be considered "income".

Am I correct in thinking this is just a simple transfer, and not considered taxable income?

It would only be a temporary transfer, and then it would be paid back as soon as possible.

Is it fine to make the transfer and just leave it at that...without complicating it?

I don't want to do it if it starts getting technical.

Thank you in advance!

[Mike9241 · Accepted solution]

It's not taxable income.   

since this is a partnership the book entry could be a debit to cash and a credit to the partner's capital account (capital contribution during the year for schedule L of the partner's k-1) and for the 1065 schedule M-2 line 2a.

when repaid it would be a credit to cash and would show up on the partners k-1 as a withdrawal on schedule L of the k-1 and also line 19a of the k-1 - cash distributions. it would also appear on the 1065 M-2 line 6a.

This is a common occurrence.   

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the other option, not recommended, is to treat it as a loan from partner in which case it would not be reported on the partner's k-1 and would not show up in the M-2. instead it would show on line 19a of schedule L unless repaid before year-end.   partner loans can create a tax issue depending on the amount because of the various tax rules concerning loans included imputed interest rules.

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paying business expenses from a personal account is the worst option, because this can cause tax issues if there's an audit.