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TampaMike
October 3, 2023
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Owner's Expenses

  • October 3, 2023
  • 1 reply
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We just started a company with 10 owners. There is a Partner's equity account, with 10 sub-accounts - one for each owner. I have recorded out initial capital deposits to each their respective equity accounts.

 

There were some expenses paid in order to get the company started. These expenses were paid by me from my own pocket. Now that the business has money, I'm looking to reimburse myself for the handful of expenses I paid out of pocket. In hindsight, should I have considered these expenses when making my initial capital deposit and paid that much less? It seems like now I would submit an expense report. Any help would be appreciated.

Best answer by Rainflurry

Thank you for the response. The startup costs I am referring to are small - $130 LLC filing fee, and a few subscription fees that come out to less than $50. In total, less than $200. 

 

The company is brand new. We have all signed a Founder's Agreement, but haven't even finalized an Operating Agreement....which requires an attorney (at a cost). This whole chicken or the egg thing.... We need money to do things like form the company, but in order to operate, we need documented processes to define how the money is dealt with. So much for thinking it would be simple enough to just reimburse this small amount once everyone put some money in.

 

I guess I will put the reimbursement on hold. We haven't secured a CPA yet, but it's on the list. I considered subscribing to Intuit's bookkeeping service, but not sure I'm pleased with the offering. My preference would be guidance along with reconciliation. Their options appear to be guidance only or everything but taxes. It would be fantastic if they offered a middle tier - guidance and reconciliation for idk....$100. Isn't this what 90% of companies who subscribe to QuickBooks would need? 


@TampaMike 

 

OK, now I understand more.  In regard to the costs, unless you need the reimbursement, it's easiest to record the costs using a journal entry: debit startup expenses and credit your partner equity account.

 

Your observation about guidance and reconciliation is spot on.  I have personally (along with my spouse) started 6 companies and sold them all.  During our ownership, I was so disillusioned by the fact that there were no good "middle-tier" accounting options (as you call them) that I went back to school to get a master's in accounting so I could figure it out myself.  It's just as you mentioned - there are a lot of bookkeepers/firms out there that can record and reconcile (but offer no guidance) and there are CPAs that are very tax oriented (that's how they pay the bills) but finding a mid-tier service is difficult.  Some CPA firms offer bookkeeping services in addition to their tax guidance/prep, but even then the cost may be more than you want to spend initially.  It's worth asking any potential CPA/tax accounting firm if they can do both and, presumably, their bookkeeping services are provided at a lower rate than their tax prep/advising services.  IMO, going with a local bookkeeper and CPA/tax accountant is the way to go.  Having a central point of contact for your business when bookkeeping/tax questions arise is invaluable.  I don't know this but I would assume that Intuit's live bookkeeping has a high turnover rate and having to get to know a new bookkeeper each time would be frustrating and time consuming. 

 

Further, using a small CPA firm has its drawbacks too.  With all of the tax changes, a small firm of one or two CPAs generally struggles to keep up with the changes.  To illustrate, we were using a small, local CPA firm that was unaware of a state tax law change which caused us to miss a ~ $140K deduction.  We were unable to file an amended return because it was a "use it or lose it" deduction.  That one missed deduction cost us more than any savings by using a lower cost, small firm.  That missed deduction was not brought to light until we moved to a larger firm.  Just some food for thought for when your venture becomes profitable.  Best of luck to you!      

1 reply

T
TampaMikeAuthor
October 3, 2023

After submitting my question, I found the following article:

https://quickbooks.intuit.com/learn-support/en-us/reports-and-accounting/accounting-for-owner-expenses/01/674427

 

I believe this is the process I should follow. Any confirmation is appreciated.

Rainflurry
Rainflurry
October 3, 2023

@TampaMike 

 

The link you attached sounds like it's for a sole proprietor, not a partnership, and it's woefully inadequate.  You should seek the advice of your own CPA/tax accountant because there's a lot going on here.  If you record the startup costs as partner equity, does your partnership agreement allow you to take a partner draw to essentially reimburse yourself?  That's a possible cash drain on the partnership.  You can record it as a loan to the partnership but make sure you have a loan agreement in writing and the loan is structured as though it is a loan from an unrelated third party with a term, interest, etc.   

 

Also, there is a different treatment of startup costs when it comes to recording them on your books vs. the tax treatment of those costs.  From a book (financial accounting) perspective, you can record all of the start up costs as expenses under a "Startup Expenses" expense account and let your CPA/tax accountant prepare year-end adjustments. 

 

From a tax perspective, you can only deduct $5,000 in qualified startup costs and then capitalize and amortize the remaining costs over 15 years.  If your total startup costs exceed $50K, then you need to reduce the $5K by the amount exceeding $50K.  Therefore, if you have startup costs that exceed $55K, you are not able to deduct any of the startup costs and the entire amount should be capitalized (recorded as an asset) and amortized (essentially depreciated) over 15 years.  

 

 

 

 

 

 

 

 

T
TampaMikeAuthor
October 3, 2023

Thank you for the response. The startup costs I am referring to are small - $130 LLC filing fee, and a few subscription fees that come out to less than $50. In total, less than $200. 

 

The company is brand new. We have all signed a Founder's Agreement, but haven't even finalized an Operating Agreement....which requires an attorney (at a cost). This whole chicken or the egg thing.... We need money to do things like form the company, but in order to operate, we need documented processes to define how the money is dealt with. So much for thinking it would be simple enough to just reimburse this small amount once everyone put some money in.

 

I guess I will put the reimbursement on hold. We haven't secured a CPA yet, but it's on the list. I considered subscribing to Intuit's bookkeeping service, but not sure I'm pleased with the offering. My preference would be guidance along with reconciliation. Their options appear to be guidance only or everything but taxes. It would be fantastic if they offered a middle tier - guidance and reconciliation for idk....$100. Isn't this what 90% of companies who subscribe to QuickBooks would need? 

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