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Old 12-12-2014, 09:59 PM
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Loan repayment to bank

I took out a loan from the bank, in my name not the s corps name, not a guarantee loan for the s corp.. I loaned my partner half of the money I borrowed from the bank. We have a loan agreement for him to pay me back. We both took the money and put into the s corp.. The s corp. has been making the payments directly to the bank. We are being audited and the Auditor is disallowing our losses and basis. We have pasted the material participation test. What should we have done? Can the s corp. make our payments? Does anyone have any suggestions? Thanks in advance for any help.



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Old 12-13-2014, 03:12 PM
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I took out a loan from the bank, in my name not the s corps name, not a guarantee loan for the s corp.. I loaned my partner half of the money I borrowed from the bank. We have a loan agreement for him to pay me back.==>>of course, you will need to report the income even if you made out the loan to a friend or family member, so long as you didn't consider the loan a gift.as you make a personal loan and collect interest on it, the interest you receive is considered investment income by the IRS. You will need to account for the interest on your income tax return and pay the correct amount of taxes on this income. Even if you made less than $600, you will still be obligated to report the income to the IRS and pay taxes;you need to record how much you earned on personal loan interest income. Maintain detailed records of all bank transactions. Keep copies of the loan agreements for your records. This may be necessary if the IRS elects to audit you.




We both took the money and put into the s corp.. The s corp. has been making the payments directly to the bank. We are being audited and the Auditor is disallowing our losses and basis. We have pasted the material participation test. What should we have done?======>>>>>basically, your loan is not tax deductible, unless it is bad debt. Loans are usually increasing basis only to the extent that they are needed to take losses. S corp shareholders can, under the right circumstances, deduct corporate losses on their 1040s. But one of the right circumstances is that the shareholder has to have basis in their S corp stock. Basis starts with your investment in the corp, and it is increased by capital contributions and your share of S corp income. It is reduced by losses and distributions even if you don’t bother to deduct them on your 1040.i guess you should have your attorney draw up paperwork to define the terms of the loan, including repayment and consequences for non-repayment of the loan. It should be clear that the loan is a binding obligation on the part of the s corp. As a recent Tax Court case notes, the absence of such paperwork negates the loan basis. For tax purposes, the loan is an "arms length" transaction, being treated like any other debt. The interest on the debt is deductible to the corp, and taxable to you personally. The principal is not deductible to the corp unless it uses the funds to purchase capital assets qualifing for depreciation deductions.The return of principle is not taxable to you, since the loan was after-tax money.



Can the s corp. make our payments?======>>as mentioned above. At year end, document the loan balance, issue a 1099INT for the interest paid to you.you will receive annual interest based on the balance and get repaid as the company sees fit .



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