How to Change Personal Assets to Business Assets
Small business operators will sometimes fund their enterprises through their personal assets. Business loans can be hard to come by or expensive for the start-up operation, but readily available personal funds can be used for business purposes. However, you should show a clear distinction between personal assets and business assets in order to avoid financial problems or an audit from the Internal Revenue Service (IRS).
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Things You'll Need
- Personal bank account
- Business bank account
- Home equity loan or line of credit
- Financial statements
- Tax attorney
- Certified public accountant
Instructions
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Your accounts. What personal funds can you tap to transfer to your business? You can use money in your checking or savings account, as well as certain funds in your 401(k) or other retirement account. In addition, if you have equity in your home, you can tap those funds and convert them into business assets. Explore your options and, if you're married, discuss with your spouse what funds you would like to transfer to you business account.
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Making transfers. Moving money from your personal accounts to your business accounts is usually as easy as writing out a personal check and depositing those funds in a separate business account. Always maintain separate bank accounts for your home and small business, as this is the best way to track transactions and to demonstrate to the IRS that your accounts are separate. If tapping the equity in your home, determine how much money will go to your business and deposit those funds accordingly.
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Legal transactions. If you have personal property such as a home or a car that you want to transfer to your small business, seek legal guidance to handle these steps. There may be several steps involved in making the transfer, including paying closing costs, registration fees, title insurance or other requirements.
Your attorney can advise you on what needs to be done to complete the transfer or he or she may offer other suggestions on how to handle the property. Your attorney can advise on IRS laws and procedures that might impact the transfer of personal assets to business assets.
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Tips & Warnings
Maintain a paper trail showing where funds were transferred from your personal accounts to your business accounts. Keep your personal and business records separate.
Work with an accountant who can help you establish a business plan separate from your personal finances. Your accountant can discuss how to handle transferring other personal assets to your business including computers and office furniture.
If your business fails, your home or other property could be at risk. Consider a worst-case scenario where your business is bankrupt and your home is lost before putting your home up as collateral.
