We have a S corp and we borrowed a loan from a shareholder back in 2012. Right now we want to pay the shareholder his loan since he already sold off all his shares last year. We just want to get that shareholder off our back and clean up our debt. Can we borrow a bank loan or borrow from another shareholder and have the company write a check back to that shareholder to pay off the loan?

You can do either one of them; a shareholder can loan money to the S corp and increases his stock basis by the amount of the loan. But care must be taken. Basis is increased for debts only if there is an actual economic outlay by the shareholder and the S corp is obligated to pay off the debt. In essence, the loan must have substance and the taxpayer must be “at risk.” when the S corp's owners/shareholders decide to put more money into the company, they may treat the cash infusion as a loan rather than an increase in the shareholder's investment. That way, when the S corp repays the loan, it isn't taxable income. The IRS may subject the loan to extra scrutiny, so it's important the loan be handled properly from the moment its created to the payoff date.Aslongas there was a loan agreement, You, I mean the S-corp, can pay off the loan in one lump sum; make regular payments on the principal; An S-Corp is a separate legal entity, and any transactions between shareholder and the corporation have to be treated as such.or make interest payments until the date for paying off the principal. If the agreement states that the loan is payable on demand meaning whenever the lender chooses to get the money back . that's usually acceptable.As you have to pay back the loan, you may record them in the account;, corporate payments on the debt and interest ; if you're ever audited, you'll need to show a clear paper trail. Interest you pay on business loan is usually a currently deductible business expense. It makes no difference whether you pay the interest on a bank loan, personal loan, credit card, line of credit, car loan, or real estate mortgage. If you use the money for business, the interest you pay to get that money is a deductible business expense. It’s how you use the money that counts, not how you get it. Borrowed money is used for business when you buy something with the money that’s deductible as a business expense. If you borrow money to buy an interest in an S corporation, partnership, or LLC, it’s wise to seek an accountant’s help to figure out how to deduct the interest on your loan. It must be allocated among the company’s assets and, depending on what assets the business owns, the interest might be deductible either as a business expense or as an investment expense, which is more limited. If you're paying him interest, however (which you probably should be doing), then you may be required to file a 1099-INT at the end of the year to report the amount of interest you paid.
Note; Some S corps use loans to shareholders as a way to distribute corporate profits without subjecting shareholders to tax consequences. Because a loan is not recognized as income, the shareholder borrowing money from the S corp will not have to pay income taxes on the loan. In other situations, shareholders might borrow money from an S corp as a genuine loan, rather than as an attempt to circumvent income taxes. As said, for tax purposes, the IRS considers the specifics of a loan to determine whether it is a bona fide loan or a corporate distribution.but you can't reclassify one as anoth