You’ve probably heard of an Owner Draw and that term does get tossed around a lot. If you need a quick refresher on Owner Draws, head here. But what is an Owner Contribution? You’ve actually probably made these before and quite possibly never even realized it.
What is an Owner Contribution
Let’s first take a look at the definition of an Owner Contribution. It’s quite literally the exact opposite of an Owner Draw. An Owner Contribution is any time that you pay for business expenses with personal funds or transfer personal funds to a business bank account. So anytime you transfer money to cover other things from your personal to your business, that’s an Owner Contribution.
How Does an Owner Contribution Work
You may have done this when you first set up your bank account. Maybe you needed to transfer some cash in to open the account, but it came from personal funds. That’s an Owner Contribution. Owner Contribution increases the equity in your company just like an Owner Draw reduces the equity in your company.
How Do You Record an Owner Contribution
Let’s say that you’re at the store picking up a bunch of office supplies for your business, and you forgot your business bank card at home. It’s okay. Use your personal card and then go home and record that into your bookkeeping as an owner contribution, because you just spent personal money out of pocket on business expenses. This ensures that you still get the expense on your taxes, but that the money came from personal funds rather than the business bank account.
If you have a business credit card and maybe funds are tight, so you use personal cash to make a payment on it, that is an owner contribution as well because you’re taking personal out-of-pocket money to pay off a business balance or to pay expenses for the business.
Owner Contribution and Business Taxes
There is no real Business Tax unless you are a C Corporation. Everything for a Sole Proprietor, DBA, LLC, and S Corporation flow through to your personal tax return, making your personal taxes due or tax return, personal cash. If you deposit your tax refund to a business bank account, this is considered an Owner Contribution because that’s personal cash being put into a business bank account.
Were there any of these areas that surprised you? I’d love to hear. Now you have a place to get started to finally get control of your bookkeeping once and for all. You can grab more support and resources for your creative business in my community, Financially Focused Photographers. If you are ready to get your financial sh!t together and makeover your creative business bookkeeping, book a call with me here!
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