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You're confusing the issue. Capital is never taxed as income under the U.S. income tax code. Ergo, the money raised in your example would never subject the bu
by rprasad 14y ago
You're confusing the issue.
Capital is never taxed as income under the U.S. income tax code. Ergo, the money raised in your example would never subject the business to income taxes.
Prepayments of revenue, i.e., for goods or services that will be provided in the future, are income and are taxed as income. Ergo, if you collect prepayments of $500,000 from pizza-lovers to sell them the pizza that you will develop using their money, the net would be taxed.
- einhverfr 14y agoCapital (equity) and net income (income - expense) are separate. It is possible, as you point out, for for taxes to be affected and this is what I am getting at. Something can affect equity and assets without affecting net income but net income always affects equity and assets. As for prepayments, assuming you aren't one of the rare cash-basis filers, it will be deemed income at the time goods are delivered (and is technically a loan before that point since you have a debt (the goods to deliver) to the customer and if you have to refund the money you may yet have to do so.