Tell me more ×
Answers OnStartups is a question and answer site for entrepreneurs looking to start or run a new business. It's 100% free, no registration required.
up vote 0 down vote favorite
1

I opened up a business in October last year and the bank account was created today and I deposited $1600. I need to use $600 for my personal expenses. I don't pay myself a salary from the company since its a new company and no revenue. Any deposits are what i deposit from personal money.

I don't have to file quarterly taxes because $0 revenue but I do 1120 every year filled with zeroes.

Now, this is a one time thing, so if i write myself a $600 check from the company, how do i show it on the books? I don't have an accountant and i don't maintain books but now i will given that everything will be on the company's name starting today.

So for now please tell me how do i show the $600 on the books?

Additionally, i just thought about it. I live with my siblings so i have to pay rent, can i pay my part of the rent from the company's account since i use my room as office space? My company's official address is in New York because a startup friend of mine was nice enough to let me have the new york address. But i live in Connecticut, so not sure how i will be able to deduct that rent expense then.

share|improve this question
Are you a sole proprietor or the equivalent? – JeffO Apr 18 '12 at 21:14
@jeffKo Its a Delaware C-Corp. – ariel Apr 18 '12 at 21:15
3  
The way you're describing it right now, it's pure embezzlment. You can't just take money out of company accounts to pay for your own expenses with no intention to return the funds. – dnbrv Apr 18 '12 at 22:15

2 Answers

up vote 1 down vote

Although I'm not a CPA - in my company which is a one-person LLC (or a sole proprietor in some methods) any income deposited by you is "Owners Equity" or a loan to the company - so any withdrawal technically would be a "Loan Repayment" or you can simply put Officer Equity on the check's memo field.

Granted, you never want to make a habit out of this as it can make you loose the corporate protections - because pulling cash from a corporate account in an inappropriate time can look bad if you get sued or audited - a one time situation shouldn't be a huge deal.

Every business is different with the margins the IRS wants to see - but when it comes to your personal funds, it's best to put your expenses first and then the business second (and even get a corporate line of credit) so you can totally separate your personal/business expenses.

Update: Just saw the note about the C-Corp - although I'm in NY and an LLC owner, from my experience, when dealing with a C-Corp that's something a CPA should be handling because the record keeping for that depends on internal documents like shareholder agreements and such.

share|improve this answer
Actually, I had to deposit that much because the banker at Chase said thats what i need to deposit to begin with and then after that it doesn't matter how much i have but i have to pay $15 a month if balance everyday is less than $7500. – ariel Apr 18 '12 at 21:26
Ah, I see. I used to be with Chase also so I know how it can be. When starting out I also was in a similar position, and it's not the end of the world if the draw is due to valid reasons, although I tend to be a bit careful with anything tax related to be safe. – theonlylos Apr 19 '12 at 3:40
up vote 0 down vote

So, the real question is: where did the $1600 come from? If it's money that you paid in yourself, then you can probably classify the transfer to you as a "Return of Capital" that reduces your basis in the company.

On a side note, going with Chase was probably a bad idea. There are lots of banks that have free business checking accounts, but they're typically smaller. First Citizens, if they're in your area, is good.

You do want to avoid mixing your own money with the company's money -- if the company gets into debt that it can't repay, it's going to look pretty fishy if you took money out for yourself instead of paying the company's creditors.

share|improve this answer
OK, if i deposit the $1600 as my own money then thats classified as owner's equity, right? – ariel Apr 20 '12 at 18:38
Should be. You need to check the state law where you're incorporated to see if there are any limits. In Delaware, for example, you have to leave the par value of your stock in the company (this is why everybody makes par value equal to $0.000001 or whatever). – Chris Fulmer Apr 20 '12 at 18:41

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.