What is a “capital” account?
• How do sales or use taxes affect my business? • What is the difference between depreciating and expensing an item? • What are capital gains taxes and how do they affect my business? • What are excise taxes and how do they affect my business? • Why do some businesses have different tax years ? • What kind of payroll taxes am I liable for as an employer? • Can I avoid payroll taxes by hiring independent contractors rather than employees? • What are the tax consequences of buying or selling a business? Q: How are businesses taxed? A: When people think of taxes paid by businesses, income taxes are probably what come to mind first. But income taxes are only one of many different kinds of taxes assessed against businesses by federal, state and local governments. Oftentimes, a tax on a business is called something else like “license fee” or an “assessment,” but any payment to the government is essentially a tax. In the United States, all businesses are subject to federal taxation on their i
Sometimes referred to as a current account, the capital account is a device that allows for easy tracking of investments and loans in and out of a given country. As securities and loans are bought and sold, the balance of the capital account is impacted, making it necessary to update the current status of the value of the assets contained in the account. In some instances, capital or current accounts also track the flow of other types of financial transactions as well. These may include tracking the purchase and sale of goods and services as they flow back and forth from one country to another. In the event of interest payments on various purchases such as bonds, capital accounts also may choose to include this type of data, assuming the interest is involved in an international transaction. The employment of a capital account to monitor transactions can be helpful in several ways. First, the account can help to provide an accurate picture of capital inflow. An example of capital inflow
If a business is taxed as a partnership, an investor’s tax basis is reflected in what is known as a “capital account.” An investor’s capital account is initially equal to the amount invested in the business. After that, each investor’s capital account is adjusted on the books and records of the business, depending on income or losses recognized and on distributions of money made to the investor. Income earned by the business will usually increase a partner’s capital account to the extent that the income isn’t distributed to the partner. Losses reduce a partner’s capital account. Calculating an investor’s capital account can be more complicated than one would think. A cash contribution pretty clearly creates a tax basis and increases a capital account so long as it’s treated as a contribution of equity rather than a loan. However, it is sometimes possible for an investor to acquire tax basis under what are called “at-risk” rules by personally guaranteeing a corporate obligation. Losses
