Just to add some comments to your response on further clarification of loan vs capital:
- Your case is pretty straight forward since there is only one shareholder. In this instance you completely avoid the potential non prorata distributions mentioned in the article attached by @Anonymous_
- The IRS looks at several factors when deciding between the two
- One of those factors is whether there is an actual note between the shareholder and company; a stated interest rate, repayment timeframe, and whether any actual payments were made on the loan.
- You do have the issue of attempting to get paid back when you have used debt basis to take losses on your personal tax return. This potentially results in capital gain.
- As @Anonymous_ noted, if you make a capital contribution your basis increases and then will decrease upon receiving a distribution. There are rules that your AAA can't become negative as a result of a distribution, so that could cause some confusion as your M-2 and K-1 may not always agree with respect to your distributions.
- As a sole shareholder, I really don't see any reason to make it anything other than a capital contribution. Could there be a business reason to do so, absolutely, but that doesn't appear to be your fact pattern.
*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.
