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leabenson05
New Member

Where do I enter a loan given by a shareholder when I file taxes for my S Corporation?

I've gone through all the steps to file the taxes but the only place that a loan from a shareholder is referenced is when the company repays the loan to the shareholder. I can't find where I report a loan received from a shareholder.

7 Replies
Lisa995
Level 12

Where do I enter a loan given by a shareholder when I file taxes for my S Corporation?

Its a balance sheet item.
♪♫•*¨*•.¸¸♥Lisa♥ ¸¸.•*¨*•♫♪
Anonymous
Not applicable

Where do I enter a loan given by a shareholder when I file taxes for my S Corporation?

no other info to report.  however,  s/h loans may be subject to various rules concerning paying or inputing interest  

inspiredcabinetr
Level 2

Where do I enter a loan given by a shareholder when I file taxes for my S Corporation?

can someone elaborate on the answers here ?

i get that the following information is wrong but can someone please explain how to correct ALL my mistakes below ?

 please read to the end as it may shorten response .

thanks in advance.

 

2019 joe loans business $10,000 to buy machine and counts 10,000 as income.
2019 joe pays company $10,000 for machine and counts that as expense .
balancing out at $0.
however now company owns a depreciable asset at $10,000 of which it depreciates $2,000 the first year . so an extra $2,000 deductible for this year
.........
(maybe im already wrong but it gets worse)
..........
2020 business repays $10,000 loan to joe but repayment of loan is not deductable so business now shows a $10,000 profit.
as an s-corp joe now pays tax on the $10,000. but machine depreciates another 2,000 so really taxed on $8,000 . or $6000 if you alsso include credit from previous year .
..............
(am i gettin this right?)
..............
point is , joe thought he was making a smart move but if instead he went through a leasing company he would get the deduction of each months payment plus additional deduction from machine depreciation.
to make the math easy
$2,000 a year in payments
$2,000 a year in depreciation
for 5 years is $20,000 worth of write offs .
............
but the way i went
is
...............
$2,000 depreciation credit first year.
pay tax on $6,000 income second year
$2000 depreciation 3rd year
$2,000 depreciation 4th year
$2,000 depreciation 5th year .

 

btw these are made up numbers for simplification 

but all real scenarios.

 

**** revised*******

i know this is not right.

1- ive learned that if i enter money as income and deduct it later as loan i am screwing up my books right there,

2- ive learned  that the interest of a loan is deductible but not principal but then id have to report interest on personal returns .so business would make less id pay less tax on shedule k-1 but more tax on incone from interest.

 

but i need to figure out how to straighten this out and file ammended returns .

ReneeM7122
Level 9

Where do I enter a loan given by a shareholder when I file taxes for my S Corporation?

Correct. You cannot enter loans by shareholders to an S corp as income and then deduct it later as a loan, and the principal isn't deductible.  

 

When determining the taxability of a non-dividend distribution, the shareholder looks solely to his/her stock basis (debt basis is not considered).

For loss and deduction items, which exceed a shareholder's stock basis, the shareholder is allowed to deduct the excess up to the shareholder's basis in loans personally made to the S corporation. Debt basis is computed similarly to stock basis but there are some differences.

If a shareholder has S corporation loss and deduction items in excess of stock basis and those losses and deductions are claimed based on debt basis, the debt basis of the shareholder will be reduced by the claimed losses and deductions.

If an S corporation repays reduced basis debt to the shareholder, part or all of the repayment is taxable to the shareholder.

 

Keep in mind:

  • A non-dividend distribution in excess of stock basis is taxed as a capital gain on the shareholder's personal return. It is a long-term capital gain (LTCG) if the S corporation stock has been held for longer than one year.

See Corporation stock and debt basis for more information.  

@inspiredcabinetr

 

 

inspiredcabinetr
Level 2

Where do I enter a loan given by a shareholder when I file taxes for my S Corporation?

renee thanks for replying and so quickly .!

id like to explain it back to you to see if a simple guy like me understands it.

1) joe’s business looks like it will  show a profit of $10,000 at the end of the year.  joe thinks if he buys a machine for $10,000 he can avoid paying taxes on the $10,000 profit so he does and then the government says “ haha joe , its nice that you made money and want to buy that pretty new machine for $10,000 but you made money and we want our share......but .....since we know this machine wont last forever you can deduct it from your taxes over 5 years” ($2,000 each year x 5 = $10,000) so joe had to pay tax on $8,000 the very first year.

2)scenario 2 same machine same story except in this version there was $0 profit at the end of the year .joe decides to lend the business $10,000 to purchase the machine . the money that  went into business was NOT recorded as sales or income it just gets entered outside on a balance sheet . the business still records the acquisition of the new machine as an asset and at the end of the first year the same $2,000 is a deductible as a depreciating asset . 

3) in scenario 2 the first year is over , the machine does well and in the second year joe makes the money back to repay himself.  so joe writes a check for $10,000 to repay himself and since joe did NOT record the loan as income joe can NOT deduct the loan repayment as an expense . therefore in year 2 if joe profited exactly $10,000 and paid himself back in full his business account would say $0. but government again would step in and say “haha joe, even though your account is at zero we still want our share on $8,000 profit” 

4) now ....... in example 3 here the reason why the government wants a piece of $8,000 instead of $10,000 is because in the second year joe is deducting $2,000 in depreciation off income that year as well. (plus the $2,000 credit the first year. and the $2000 the next 3 years)  my issue has been that it appears i am loaning already taxed money to the business and then paying tax on it when i get it back but thats NOT AT ALL whats happening it just appears that way .

**************

did i get it ?

i really hope i go it cause this has been bugging me.

ReneeM7122
Level 9

Where do I enter a loan given by a shareholder when I file taxes for my S Corporation?

Your understanding looks correct, but keep in mind that special care should be taken for loans from S-Corp shareholders.  There has to be evidence that it is an actual loan because the IRS can come and recharacterize the loan as a shareholder distribution. If there are more than one shareholder the ownership percentages would come into play. Then the S-Corp could end up being reclassified as a C-Corp because the S-election could be blown.  This could result serious tax consequences.

@inspiredcabinetr

inspiredcabinetr
Level 2

Where do I enter a loan given by a shareholder when I file taxes for my S Corporation?

ah ha . 

thanks for that peace of mind renee . 

And thnaks for the other mentions of concerns but there are clear paper trails of loan as well as formal/informal letters recording the loan and im sole shareholder. 

so we should be good .

i feel like people think accounting is harder then it actually is .

while i fully give credit for the knowledge cpa’s hold and they also have mycompassion for ever changing tax laws , my short comings have always been that tax law appears to be written by lawyers making it that much harder to understand.........but i digress , thanks again for your help and speedy answers hopefully these conversations may help others that stumble upon them . .

 

 

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