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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
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Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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my husbands corporation is capitalizing my new ...

Resolved Question:

my husbands corporation is capitalizing my new business, what are the tax laws
Submitted: 6 years ago.
Category: Tax
Expert:  Ed Johnson replied 6 years ago.

DearCustomer

What do you mean about capitalizing the business?

Normally in tax law that means you are amortizing the expenses over a period of time, such as depreciation, etc.

So I need to know waht expenses and capitalizing issues he has?

Customer: replied 6 years ago.
yes sent reply
Customer: replied 6 years ago.
I don't understand I sent a full response. Perhaps you didn't receive it.
My husband is a general contractor under an S corp.
I am a handbag designer, (new business) under an LLC.   We are not partners in either entity. His business has completely capitalized my business from the start directly out of his business general acct. As well I use his Corporate Amex for payments and purchases. Is his business considered an alter-ego of mine. What are the tax laws govening this type of business practice?

Thank you
Expert:  Ed Johnson replied 6 years ago.

Dear Petytara,

Thank you. I am sorry, but no, I did not get it.

So when you refer to capitalize, you mean he bought or took over your business, and added the assets to his books?

 

Customer: replied 6 years ago.
No, I started a new business and the capital to start the business came directly from his business acct.
example, he writes a check directly from his business account and I deposit that check into my business acct. On his books he lists it as a capital investment.
Expert:  Ed Johnson replied 6 years ago.

Dear peteytar,

Thanks, XXXXX XXXXX makes more sense.

So your husband to money from his business and gave it to you as an investment to purchase capital equipment in your business is that right?

AND does he expect this money to be paid back, or is he earning interest on it. I need to make sure his is not in some way a loan. The difference is that a loan has a fixed payback schedule, and an investment has no such agreement of pay back but may be tied to shares of earnings or dividends, etc

If this is a loan, it is not taxable to you. You list it on your books as a liability.

If it is investment money, then it becomes income on which you have to pay taxes. BUT, if it is capital income, you are going to spend it on capital equipment; capital equipment will be treated as an expenses or depreciation expense using one of the depreciation conventions, depending on the class of property.

This becomes investment expense on your husbands books and he pays no tax on it, but, he may have to pay taxes on his investment earnings if he derives any dividends or interest for the investment.

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Ed Johnson and 5 other Tax Specialists are ready to help you

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