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Level 1
posted May 22, 2024 11:48:05 AM

For a small busines S-Corp, what is the best way to handle personal expenses that accidentally came through a business account?

I have heard from multiple accountants that a personal expense should be classified as Distributions. However, I thought that the distribution total for the year will be taxed. Is it best to classify personal expenses as a loan from the business to the owner and the owner will pay it back as they can?

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1 Replies
Employee Tax Expert
May 22, 2024 12:08:04 PM

Personal expenses should be treated as distributions. Whether or not the distributions will be taxed depends on your individual tax situation. In general, if the S-Corp is profitable the distributions will NOT be taxable.

 

The personal expenses may be classified as a loan but there should be a note that reflects the transaction and it should be charged a market interest rate.