I am going to jump in here and only address the loan component.
From a business perspective there are two components to your financials; the income statement (Schedule C) and also a balance sheet. Many small businesses do not always maintain a balance sheet, but I would recommend every business have one.
You can think of the loan in a couple of different ways:
- When you contribute in $$ you (the business) will use those $$ to purchase items. Those items that you purchase are then written off as expenses or possible you purchase an asset that will then be depreciated. If you would take money out of the company to pay yourself back, your wouldn't expense that repayment.
- Borrowing money from a bank is the same way. The business uses the $$ from the bank to purchase something and that is what gets expenses. If you expensed the repayment you would be taking a deduction twice.
From an accounting perspective you have the following;
- You borrow the money from the bank. Here you debit cash and credit loan payable. This is all balance sheet related.
- Now when you purchase something with those $$ you debit an expense account and credit cash.
- Then you repay the loan you debit the loan payable (for the principal portion) and credit cash.
- The first and third bullet essentially are a wash and the impact on the tax return is the second bullet.
- The last component is paying the interest on the loan. Here you would debit interest expense and credit cash.
Hope this provides a better understanding of the loan issue.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
