Tax Aspects of Funding Decisions
An important part of asset protection planning involves legally shielding your wealth and assets from the tax claims of the federal government.
When choosing how to strategically fund your business, in order to limit liability in your business structure, the decisions you make could seriously impact your tax status.
Funding a business entity with equity or debt normally may be accomplished tax-free. That is, in equity and debt funding, normally neither the owner nor the entity recognizes gain.
However, in some situations, the owner will recognize gain when he acquires his equity interest. And that gain can have significant tax implications.
So a small business owner needs to be aware that certain ownership contributions are taxable events. Moreover, how the business is funded will have an impact on the eventual allocations of income and interests, and how they are taxed.
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