Self-built software contributed to my LLC at $0.00: correct?
Sole member of a Wyoming LLC (disregarded). I signed and notarized an assignment contributing software, brands and domains I built personally as a capital contribution; the operating agreement lists them at $0.00 (my basis, nothing capitalized). 1) Is $0.00 right for the capital account or should it be fair market value, and does it matter for tax? 2) On a later sale, is the LLC's basis my carryover basis? 3) Company costs I paid personally are booked as contributions, not loans. Cleaner?
Quick Answer:
1) For tax purposes, your basis in the capital account is generally your **carryover basis** ($0.00), not Fair Market Value (FMV). Under Section 721 (applied by analogy to disregarded entities), contributing property is a non-taxable event. While some operating agreements track "Book Capital" at FMV, your "Tax Capital" remains your cost basis. It matters for tax because it dictates your ability to deduct future losses and determines the gain upon sale.
2) Yes. Under Section 1012 and Section 723 principles, the LLC takes a **carryover basis**. If your basis was $0.00 at the time of contribution, the LLC’s basis for calculating gain or loss on a future sale is $0.00.
3) Booking personal payments of company costs as **capital contributions** is generally cleaner for a single-member LLC. It avoids the need to draft formal promissory notes, calculate imputed interest under Section 7872, or track repayment schedules. It simply increases your outside basis in the entity. Ensure you keep contemporaneous receipts to substantiate these as business expenses rather than personal draws.
Note: This answer is provided for convenience only. It is important that you speak to a CPA about your individual tax situation.
