With the distribution of the $1,200 COVID-19 stimulus checks, you may be wondering how you can use these funds for business purposes. Since the stimulus program is for individuals, you will have to be mindful of how you inject this money into your business.
The beauty of sole props and single-member LLCs is that there is no division between what's business and what's personal, meaning your stimulus check can be easily injected into your business without any complications.
You can go ahead and deposit your stimulus check directly into your business account or just start using the funds for business purposes.
If your business structure is a multi-member LLC, you will be filing as a partnership (unless you've filed Form 2553 to the IRS, in which case you will be filing as an S corp).
With multiple members, each member can contribute their stimulus check to your joined business account, but you will need to track who made the contributions separately. At year-end, you will need to have tracked cash contributions by all individual members to fill out Box 13 for each respective Schedule K-1.
Best practice: Deposit your stimulus checks into a shared business account, and track which member made which contribution.
Businesses filing as an S corporation should track any cash contributions to the business separately for each shareholder in the equity section of the balance sheet.
S corporations will have their contributions converted to Share Capital at year end resulting in ownership interest. This means that tracking each shareholders' contributions accurately is incredibly important due to the potential impact on equity.
Best practice: Transfer the stimulus amount from your personal account to a business account and record it as Additional Paid in Capital for the correct shareholder. Consult with a CPA to understand how this will affect the equity of your business.
One downside of C corporations is that any intermingling of personal and business funds is problematic—the "business entity" has to remain separate from the individual. Stimulus checks made as contributions to the company must either be an equity transaction or a loan to the corporation with intent to be paid back.
Best practice: Consult with a CPA before putting your stimulus into the business to understand if it's better to pay it back as a loan or be an equity transaction.
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