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How To Calculate Interest For Shareholder -note Payable - Ask TaxGuru
 
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Old 01-30-2014, 09:19 PM
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How To Calculate Interest For Shareholder -note Payable

On My Last Return Filed My Cpa Accrued Interest Of 1163.00 For Loan Owed To Shareholder (beg Of Yr Was 26,933 And End Of Year Was 50,979) An Addl 24,046 Was Loaned To S Corp From (100%)shareholder During Year Thus Making Yr End Loan Of 50979. My Question Is How Do I Come In And Calculate The Interest On This Return - An Additional Loan To The S Corp From Shareholder Of 26,146 Leaving 77,125 As The Yr End Loan Amount. Is There A Formula To Use?? I Have Been Able To Figure Out Everything Else But How To Handle The Interest. Please Help.



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Old 01-31-2014, 11:37 AM
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Quote:
Originally Posted by ndsheetmetal View Post

#1; My Question Is How Do I Come In And Calculate The Interest On This Return - An Additional Loan To The S Corp From Shareholder Of 26,146 Leaving 77,125 As The Yr End Loan Amount.



#2;Is There A Formula To Use?? I Have Been Able To Figure Out Everything Else But How To Handle The Interest. Please Help.
#1; At year end, you need to document the loan balance as in your case, and issue a 1099INT for the interest paid to s/h owners.. also this scenario is possible; an sa corp s/h or owner that takes draws all year, he pays the same 941 amount each month, the corp files 941`every quarter , then at the end of the year, the s/h took more draws then he should have. The corp take it against his loan and issue him 1099 int. Interest is not paid on capital contributions as they are just that, capital contributions. Repayments are a return of capital and reduce stock basis, while contributions increase stock basis. Loans are loans, increasing basis only to the extent that they are needed to take losses. At that point, repayments are capital gain items as a percentage of stock basis vs loan basis.

note;any interest paid by the corp would equal the interest you must report as income on your individual return, so in effect they would cancel each other out. However, under IRC Sec. 7872, the corporation is required to pay interest on the loan(s) s/h make to it.The interest rate charged must be at least as much as the applicable federal rate, which is determined monthly by the IRS and posted on theIRS Web site, Internal Revenue Service. ou need to check it with the irs website


If there is no stated interest in the loan agreement, both the borrower and lender, on their tax returns, impute the interest and treat it as if it were paid. In other words, part of the loan payment will be treated as interest expense or interest income. The interest the corp pays is deducted on Form 1120-S as an ordinary and necessary business expense, thus reducing the corporation's taxable income



#2;as mentioned above.



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Old 01-31-2014, 02:23 PM
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How to calculate interest for shareholder - note payable

Thank you for your response. Do I issue a 1099-Int to the shareholder even if the interest was not paid to the shareholder?? It is a payable - but because the company in not yet in a profitable situation the shareholder has not been paid back any of the loans or any of the Interest. Your thoughts?? Thank you.



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Old 01-31-2014, 03:21 PM
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I guess you may not book interest until you pay it. Or if you do book it Dr. interest expense Cr. Notes Payable, then you'll report it on the 1099INT when youpay it and on the 1040. So it can be reported with cash or to the note, or unreported until you do pay it.If you book the accrual, which then creates a book-tax difference on Sch M1 of 1120S if the amount is not paid; the 1099-int is only issued on the amounts paid.



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