Business definition for the week: CAPITAL
Capital = This is money that is going to be invested in a business.
For example: I am starting my business with $5,000 capital
This is your PERSONAL money that you have invested into your small business. When you first opened a business checking account you probably didn’t have any income for that opening balance the bank required, did you? So you had to pull money out of your personal funds to open up that business account, right?
This investment is called Capital. It is NOT an expense that can be deducted on your tax return. Many people make this mistake and write it off as start-up costs, but that is incorrect.
Make sure your bookkeeper or accountant (which might be yourself) knows that this money came from you personally and doesn’t count it as INCOME (which IS taxable) or as an expense.