J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Investing Your Own Resources

When you add cash to your start-up, there are no immediate tax consequences to you or your business. The cash you add becomes part of your tax basis for your interest in the business. The company includes the cash on its balance sheet as an asset as well as owner equity.

CAUTION

The following brief discussion is only an introduction to what can be a very complicated situation. You should work with a knowledgeable tax advisor when setting up a business and contributing property to it so you get things right!

However, when you add property to a business, things get a little more complicated. The results can depend on whether the business is incorporated or is a partnership as well as whether there is any outstanding liability on the property (e.g., a mortgage on a building you contribute to your business).

Partnerships and Limited Liability Companies

No gain or loss is recognized when you transfer property to a partnership or limited liability company (LLC) in exchange for an interest in the partnership or LLC. Gain may be recognized if your liabilities are assumed by noncontributing partners and these liabilities exceed your adjusted basis in the property you transfer to the business. Gain can also be recognized when a partnership or LLC interest is given in exchange for services you render.

Business’s basis in transferred property. The business’s basis in the property received is the same as your basis (increased by any gain you may have had ...