Thanks a lot for the answer. I will answer few missing points :
1. Yes we did pay a salary to ourselves via regular payroll.
2. I don't have a formal loan agreement, so I think this should be treated as more of a capital contribution to start the business.
3. If I call the distribution as loan payment only thing it changes on K-1 is that it shows as 16 E instead of 16 D. In both cases the cost basis is still positive and it doesn't seem to have any effect when I put these values while filing my personal taxes.
