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S-Corp Start up Contribution

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  • S-Corp Start up Contribution

    I started a S-Corp last month for my 1099 income and I have a quick related questions.
    When I started the S-corp I contributed a chunk of cash to the business out of my personal funds to get things started and also to qualify immediately for the bank of America rewards perks.

    1. Can I just leave that money in the business accounts to continue my rewards perks and just count it as a initial owners contribution? Or should I have the S-corp pay me back?

    2. If the S-corp needs to pay me back should I have it pay me back asap? Or can I give it some time for the S-corp to slowly accumulate enough extra cash and then just transfer the funds back to my personal account once I have enough funds to transfer back to me and keep the balance up to continue the rewards perks?

    3. Once the S-corp has enough extra funds is it as simple as just transferring that money back into my personal account? I dont have to count it as a distribution right? since it was a transfer from my personal account initially.

    4. If I need to get paid back ASAP I could pay myself a smaller salary the first few months until the S-Corp has accumulated enough money quickly to pay me back quickly. The only reason I do not really want to do that is because by paying myself a smaller salary the first few months that would limit the amount I can contribute to my individual 401k this year.

    5. Last question. can a S-Corp open its own brokerage account? That way I could have that chunk of cash with my S-Corp and qualify for the bank of America tiered rewards and I could still invest the money in investment funds as I please.

    All that being said, I would like to either just leave the initial contribution in the S-corp account and I'm assuming I would just get it back whenever I close the S-Corp. Or I would like to have the S-Corp slowly accumulate enough extra cash by next year so that I can just have that same chunk of cash transferred back to me sometime in the next year or two. Are either of these options for me? I want to keep the business accounting clean and simple if possible.

    Thank you to everyone in advance

  • #2
    Who advised you to open an S-Corp?


    • #3
      My Financial advisor, senior partner and tax accountant recommended me to start a S-Corp. I just stumbled on to this site and now that I read more into it I may have done just as well as a sole proprietor. I am just around the cut off right now in terms of 1099 income where it seems I would come out about even as a S-Corp vs sole proprietor. I am hoping to get busier in the next few years and generate more income so hopefully it all makes sense in the long run.


      • #4
        I agree. You need to hit pause with your S-Corp financial actions until you have a much better understanding of how S-Corps work. It is pretty clear you need professional assistance at this point. I'm sure the forum's financial professionals will also advise you to slow down.


        • #5
          Hi, and welcome to the forum!
          1. You don’t have to pay yourself right away. The $ you put into your corp counts as “basis” (if you don’t know exactly what that is, you are over your head), so it’s not necessary to pay yourself back.
            • If you want to treat it as a loan, you need to have a loan document and pay yourself or accrue interest no lower than the federal AFR (note - most people refer to it as the Federal AFR Rate. That translates to “Applicable Federal Rate Rate”).
            • If you treat it as a capital contribution, you can take it out as a distribution in the future, if you choose to. Again, it gives you basis.
          2. Your timeline if you follow the above guidelines
          3. Yes, but I don’t understand your concern about “treating it as a distribution”. Of course, this assumes you are paying yourself a reasonable salary.
          4. not really a good argument - you can always pay yourself a bonus in December, but really d/n matter.
          5. Yes, but I never recommend an S-corp own an appreciating asset, so don’t use it for investing.
          6. You didn’t ask but, fwiw, if you dissolve the S-corp now, you will have to wait 5 years to elect again. If you plan on your income reaching this point before this time, you need to talk it over with an (experienced, qualified) professional. When I say “income”, I am not referring to gross receipts, but salary+s-corp profits.
          Agree with the others that you might want to assess whether the S-corp is appropriate for your situation. We typically calculate break even ~$400k for all states except CA and TN. CA is ~$600k and TN is somewhere in between. Hopefully, you are including the cost of CPA services, payroll services, the 199a deduction limitation, and any other non-FICA expenses in the long-term impact of operating through an S-corp.

          I am not surprised in the least that you received the advice you did from several quarters. They are the default for most CPAs for business-owners. FAs recommend them because they are told to do so by CPAs. Doctors recommend them to new, inexperienced doctors because they have no clue except for that’s what “their guy” told them and that should never be questioned. Right?

          Of course, it is certainty possible that all your guys met and ran the calculations and came up with an informed plan for you. In that case, my advice is for some of the lurkers out there who haven’t read this yet.
          Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087