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Protecting Your Assets Limiting Liability in Your Business Structure Tax Aspects of Funding Decisions Taxable Ownership Contributions
Protecting Your Assets Limiting Liability in Your Business Structure Tax Aspects of Funding Decisions Taxable Ownership Contributions
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When strategically funding your business, certain decisions may affect your tax status. A small business owner may have to recognize gain when acquiring an equity interest in the business if the owner:
- receives it in exchange for a contribution of past or future services
- receives some kind of property in return for the interest (a "disguised sale")
- contributes property subject to a liability (such as an outstanding mortgage)
- distributes previously contributed property to another owner within 7 years of the original contribution
The first three rules will apply in funding either the limited liability company (LLC) or the corporation, although the third rule will be applied differently in either case. The fourth rule applies only in the case of the LLC.
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