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How to characterize S-corp repayment of a loan from a 100% shareholder. What tax implications does this have? How to record this

100% owner of an S-corp for a few years. S-corp has always been profitable. I have lent the company from personal money, let's say $3,000. Now that the company is in good standing, I would like to have it repay the loan. The loan was in the form of payments I had taken care of on behalf of the company in year 1 for various expenses from money out of my personal finances. How do I deal with this and how do I record it? Using Quickbooks for bookkeeping as well if that helps or makes a difference. What are the tax implications? I'm assuming that because this is money the s-corp owes me that this is not a taxable event but I'm unsure how to reflect that in my books and subsequently tax filing for this year.

Thanks

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New Member

How to characterize S-corp repayment of a loan from a 100% shareholder. What tax implications does this have? How to record this

Correct repayment of a loan is not taxable or a tax deduction, but interest expense is reported by the business and you would have interest income (during the time the loan is held). Learn more about calculating, what's called imputed interest (required) here: https://turbotax.intuit.com/tax-tips/tax-payments/irs-tax-rules-for-imputed-interest/L7UbulHpC

For recording your loan, it will affect your balance sheet and business value (not income and expenses). When you initially put the money in the business, it increased your cash account (asset) and should be recorded to a Loan to shareholder account. Then, payments out of the business bank account are recorded to the loan and will decrease it the balance of the loan. 

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Highlighted
New Member

How to characterize S-corp repayment of a loan from a 100% shareholder. What tax implications does this have? How to record this

Correct repayment of a loan is not taxable or a tax deduction, but interest expense is reported by the business and you would have interest income (during the time the loan is held). Learn more about calculating, what's called imputed interest (required) here: https://turbotax.intuit.com/tax-tips/tax-payments/irs-tax-rules-for-imputed-interest/L7UbulHpC

For recording your loan, it will affect your balance sheet and business value (not income and expenses). When you initially put the money in the business, it increased your cash account (asset) and should be recorded to a Loan to shareholder account. Then, payments out of the business bank account are recorded to the loan and will decrease it the balance of the loan. 

View solution in original post

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Level 1

How to characterize S-corp repayment of a loan from a 100% shareholder. What tax implications does this have? How to record this

Why wouldn't the shareholder repayment  of a short term loan to cover expenses reduce the income reported for the tax period? The loan is not income & when repaid not an expense, however the use of the loan monies to pay expenses is recorded as such ie: rent, utilities,  payroll etc. (interest for a loan would be an expense, but  as the  shareholder you're not going to charge interest (a lending bank otherwise would)

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Level 15

How to characterize S-corp repayment of a loan from a 100% shareholder. What tax implications does this have? How to record this

I think the proper category in QB would be loan FROM shareholder for any amounts the owner loaned the company and any repayments for any reason would reduce that by making an entry in payments TO shareholder.
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Level 15

How to characterize S-corp repayment of a loan from a 100% shareholder. What tax implications does this have? How to record this

Maybe this will help clarify things.

When you or any other entity borrows money, that money does not belong to the borrower. It never was, is not now and never will be the borrower's money. Therefore, it is not taxable income in any way, to the borrower.

 

When you or any other entity lends money, that money is "YOUR" money and you already paid taxes on it. When you lend it out it does not reduce your taxable income. When it gets paid back it does not increase your taxable income. However, as a lender you are expected to charge and collect interest on that money. You the lender *will* pay tax on that interest too - generally in the tax year it is paid to you. If you don't charge interest, then with rare exception (which appears to not apply here) you will be taxed on "imputed" interest which you are required to figure and report.