USA Moving product into a LLC

[lovethepirk]

Thanks in advance.....

I personally produced about $20,000 worth of a product. It has demand so it is time to sell.

I just started an LLC. My question is how to I account for stuffing this product onto the LLC balance sheet and should I stuff it in there at what I built it for or fair market value. It may be worth 20K but with my sweat and time it should be around 50K in my opinion. Just a thought.

thanks

 

[ArcSine]

Potentially, two different answers depending on whether you're recording the transfer for accounting purposes or for tax purposes.

For US tax law, the inventory assets will transfer in at whatever cost basis you have in the stuff; i.e., whatever hard costs you incurred in buying / building the items. Not completely sure from your post, but it sounds like the $20K you referred to represents this cost-basis number.

If the LLC subsequently sells the inventory for $50K it'll record a tax gain of $30K, just as you would have on your personal return, had you sold the stuff yourself without first uploading it to an LLC. (I.e., an LLC can't be used as a device to do an end-run around recognizing gains that you'd have had otherwise.)

Alternatively, if you really want the inventory to go onto the LLC's tax books at $50K, you could set up a bona fide sale of the inventory from you to the LLC, at a price of $50K. Then when the LLC sells the stuff for 50 it'll have a zero gain or loss. The other side of that coin, of course, is that you'll have to report a $30k gain on your personal return as a result of that sale.

(This latter alternative might not actually be available, depending on whether your LLC is a one-owner entity, and how those single-member LLC rules might play a hand. I just tossed up that alternative structure to make the point about how end-run loopholes don't exist in this context.)

For non-tax accounting purposes, though, the books would paint a more realistic picture if the inventory was transferred in at whatever FMV they had at the time of transfer. But I'll defer to the more GAAP-savvy whizzes around here for a better response to the accounting side of the issue.