Owner Contribution

What is an owner contribution?

An owner contribution is money or property an owner puts into the business. Contributions increase your equity and basis in the business. They are not taxable income to the business. Common reasons to contribute include starting the business, funding growth, covering cash shortfalls, or maintaining required capitalization. Contributions are the opposite of draws or distributions.

Recording contributions properly

Credit an equity account like owner contributions or additional paid-in capital when you put money into the business. Keep contributions separate from loans. If you intend to be repaid, document it as a loan with a promissory note and interest rate. Commingling contributions and loans creates confusion about what you are owed versus what you have invested.

Contribution vs loan considerations

Contributions increase your basis, allowing you to deduct more losses and take tax-free distributions. Loans create debt basis for S corporation shareholders. Loan repayments are not taxable; return of contribution is not taxable up to your basis. The choice affects tax treatment of future withdrawals. Discuss with your accountant before making significant capital infusions.