Tax education. How best to make start-up capital for business

Before each startup there is a survey about the source for the initial capital. Photo: depositphotos.com

When a company is created, the question arises of the tax consequences of making start-up capital. A typical situation: the founder of the company wants to transfer a certain amount for business development. In this case, there are two ways of depositing funds - a long-term loan (debt in the capital structure) or an investment in authorized capital (capital contributions / equity investments).

There is a strong opinion that a loan has more advantages than a constituent fee. But, as is usually the case, each situation must be considered individually. Of course, consultation with a specialist will give a clearer idea of ​​which solution is most appropriate for a particular situation. In this material will be considered the most common arguments in favor of a decision.

However, if the company has poor capitalization (thin capitalization) - i.e. the amount of debt exceeds the capitalization of the corporation, then the IRS considers the long-term loan from the founder as a contribution to the share capital and requires the application of tax accounting rules as an investment. The 385 article (section 385) governs this. As of 2015, the IRS did not issue a separate regulation to this effect, therefore, when a loan is given with / the owner of a corporation, the following practice must be taken into account:

1. Is the amount of interest on the loan average market and has a clear start and end date of payments.
2. Is the loan issued in writing indicating the beginning and final repayment of the loan, the interest rate on the loan and the procedure for paying interest. Zero-interest loans are likely to be regarded as an investment in share capital.
3. Whether payments are made on a regular basis.
4. The ratio of capital and debt owned by one and the same person.
5. Whether payments on the loan depend on the activities of the company. It is believed that the lender will not tie the loan to the success of the company.
6. Purpose of the loan. It takes into account the fact that lenders usually give money for specific projects, and not generally for activities.

This list is not exhaustive, but gives an idea of ​​the general approaches that the legislator uses to retrain a loan into an investment in authorized capital.

Both authorized capital and credit can be given in the form of a transfer to the account of both non-cash funds and cash.

This material does not constitute written tax advice or legal advice. Any information from this material is not created for use by the taxpayer in order to avoid any sanctions imposed on the taxpayer, and also can not be the basis for consultation by third parties. Please always consult a professional service before taking any action based on the information from this material. Keep in mind that information may be outdated at the time of reading, and we do not undertake to guarantee the updating of information. Copyright www.Solven.pro. Xnumx

Original article published on the site Solven.pro.

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