Considering loaning my business money...but how do I do this?

<p>Yesterday presented itself with the opportunity to upgrade some glass, but it would require me loaning my business around $1k. Now, I know this needs to be done formally, e.g. written agreement, paper trails, etc., but how on earth do I do this? Might it be better just to wait so I don't have to worry about the IRS?</p>

<p>Your CPA will know all of the ugly little details.</p>

<p>You might consider finding out if your local community college offers a "how-to" course in establishing a small business, or Accounting 101.</p>

<p>Not legal advice, but: a loan from you to you is not going to be seen in good light by the IRS...</p>

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<p>Hi,<br>

That was great to know this forum..I'm a newbie here,, So, can anyone help me to learn more here...</p>

<p>Buy yourself the equipment and let yourself borrow it for work use. Then if you go bankrupt you won't owe yourself $1000.</p>

<p>Not sure why you would want to do it this way?</p>

<p>Why not make what ever purchases you find necessary and place them under capital expenditures?</p>

<p>What is the structure of your business entity? LLC, Inc, sole proprietorship?<br>

The later offers far less tax benefits; but as someone said, you might want to look into a basic business course as they are worth their weight in gold to anyone starting any business venture.</p>

<p>..and just for fun, if you are a structured entity, google (Co-Mingling) of funds.</p>

<p>Thanks for the help, guys. Would the IRS also frown upon just splitting it $1,100 / $600 between business and personal and simply not paying myself back later on?</p>

<p>Tax and legal advice are valued at what you paid for them.<br>

We might be photography professionals but not in tax, accounting or legal matters.</p>

<p>I am a CPA, and I believe Matt Laur and Danny Wong gave the best answers. There are too many variables to give you an accurate answer.</p>

<p>You're right to want to do this formally, and splitting the amount would seem to confuse the question of ownership (do you own the equipment or does your business entity own it?). Your question is basically about avoiding a co-mingling problem, so stick with that impulse. There's no problem with investing in your business, so make the investment and recoup it in profit. If you're serious about this as a business, you should have professional accounting advice, about this and also generally about you handle the books for your business. Ask for and follow it.</p>

<p>A simple way with zero paperwork is you stop paying yourself for awhile out of your business.</p>

<p>Then the businesses cash balance rises with each sale; and you fund the capital expense item with cash.</p>

<p>Don't let the paperwork get in the way of an opportunity. Put the cash in the business now and memorialize it later with the appropriate documentation. With a Schedule C business you are the business and your Draw can be credited for your having put cash back in. (An amplification of Kelly's good comment.) When I say you are the business as a Schedule C filer, I mean you can't loan yourself money. Interest isn't an issue. With other entities you would look first at whether your owe the entity money for your having borrowed from the entity in the past and not fully repaid it. Then you would look to if your deposit of cash into the business would be recorded on the entity's books as debt of the entity due to you, how quidkly the business could pay it back, set the loan terms later after discussing the details with your CPA. Here, just act if it makes business sense. CPAs can clean up the mess later, and this doesn't sound very messy. However always first talk to your CPA before you buy or lease a car :) !</p>

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<p>Would the IRS also frown upon just splitting it $1,100 / $600 between business and personal and simply not paying myself back later on?</p>

 

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<p>No, they would probably be happy that you didn't represent mixed use property as all business use property. The issue is: will the glass purchase provide the business with enhanced earnings that will pay you back later on.</p>

<p>If you want to split an expense, an idea would be to buy the item yourself and then sell it to your business for a reduced price, with you, as an individual, absorbing the difference. Also, you can buy something and donate it to the business - that is also a perfectly legal and acceptable practice (as long as you don't make it a habit...)</p>

<p>Wow...lots of interesting responses here. So far loaning money is out and so is splitting it, leaving investing, donating and selling the only options. Since the glass I already have lined up to sell is $500 + $250, I would take no hit personally for simply investing the money into my business. But if I do that, I need to do it right (as with anything else).</p>

<p>Let's say I purchase this outright with personal funds...and sell it to my business shortly thereafter. How does that work?</p>

<p>It still feels like the best thing to do is not purchase this, but I'm still going to consider these options if I can get more input on how the above acceptable practices would work.</p>

<p>"CPAs can clean up the mess later, and this doesn't sound very messy."</p>

<p>99 times out of 100, it costs my clients more for me to clean up a mess than it would have cost them to consult with me first and avoid creating the mess to begin with.</p>

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<p>It still feels like the best thing to do is not purchase this</p>

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<p>Why? Are you having second thoughts about the merit of the replacement glass? Ask the expert photographers here about the glass you are selling and the glass you are buying. Don't ask them how to structure the deal. If it is a 'deal' and makes business sense, don't let the fairly simple transactional details get in the way. For a transaction expert to answer your question about the deal's structure, you have to at least say if you are a sole proprietor, an S corp, an LLC, or have or don't have a partner. </p>

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<p>99 times out of 100, it costs my clients more for me to clean up a mess than it would have cost them to consult with me first and avoid creating the mess to begin with.</p>

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<p>Very true, Joel. Even so, that incremental cost can still be less than the cost of a lost good opportunity :). And in the particulars here, clients make loans to their businesses all the time and borrow from their businesses all the time and the accounting for those loans to and from the business is straightforward where there either is or isn't interest, depending. I would prefer a Schedule C client make a business purchase with a business checking account or business credit card. If they don't, and they tell us they used personal funds to buy a business asset, then for a Schedule C its just a debit to equipment and a credit to draw. Not a big deal, agreed? </p>

<p>Now the two latest posts require me to go a bit more in detail as to my background and what I'm trying to accomplish here...</p>

<p>Sole prop, started this past April after six years of shooting seriously and all my life just in general, making increasing amounts of money towards the end. Turned awesome profits this year and have begun building a client base. I have a tax license and am doing things legally as far as I can tell. I'm also a full time college student, and my boss for my part time video / media job of three and a half years has been of much help in answering questions because he's a small business owner who went to school for such and is an overall genius.</p>

<p>Aside from nature and landscape and fine art prints, which is my ultimate passion (that has yet to turn good profits), I'm focusing on weddings and portraiture because I very much love it. I shoot with 2 D90's, a Sigma 70-200 2.8, Nikon 50 1.4, Tamron 18-50 2.8 and Nikon 18-105 VR.</p>

<p>Specifically this forum thread is regarding a deal I found on a Nikon 70-200 VRI w/ second generation 1.7x teleconverter. Both are absolutely mint and are being offered to me for $1,700. Why the jump? Because I had a huge spike in business last week when I photographed a martial arts tournament, which has since turned into several bookings and quite a lot in print sales from the event itself. Only thing is there's a lapse between the time proofing goes up and sales come in, thus I technically cannot purchase this combo outright for at least six weeks.</p>

<p>I've been asking myself why I don't just wait and buy a refurb lens w/ warranty at $1,500 from Cameta eBay auctions. Being a lower cost, I could grab this in about two or three weeks, but then I wouldn't have that extra reach with the teleconverter (nor would I be inclined to purchase one because it's extra money I don't NEED to spend). Other option is to actually wait until I get my first wedding booking for next year before I purchase more equipment...</p>

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<p>Now the two latest posts require me to go a bit more in detail as to my background and what I'm trying to accomplish here...</p>

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<p>Your latest questions should get more readers by posting it instead to the Wedding and Event Photography forum. I'm sure many who see it posted here where it is can give you excellent advice on the glass decisions and there may be even more such people who notice the post specifically in the Wedding and Event forum. </p>

<p>Once you have decided then try to write a business check, or use a business credit card, for the whole thing. If you end up paying with personal funds then be sure to pick up the equipment purchase in your Schedule C accounting. Those particulars you can discuss with your accountant.</p>