Discussion:S CORP--Loan from Shareholder vs. Capital Contribution?
From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.
From TaxAlmanac
Discussion Forum Index --> Tax Questions --> S CORP--Loan from Shareholder vs. Capital Contribution?
| 5 March 2006 | |
| I am fairly new to S-Corp returns. I am preparing a return for a new S Corp. The shareholders put $15,000 into the business in 2005, and the business incurred a $13,000 loss for the year. Is it better to classify the $15,000 as a shareholder loan to the corp or as a capital contribution? Why? | |
| 6 March 2006 | |
| You'll probably classify a portion to the capital stock and I hope someone else will correct this if I am wrong, but I always try to put at least some as APIC and some as shareholder loan. Either way you are creating basis, but beware of the interest requirement on loans greater than $10,000 and documentation needed. If you classify the entire $15,000 as capital stock and APIC then you will not have the issue of having to amortize the loan and restore loan basis due to losses taken. The loss of $13,000 should be fully deductible in the current year because you will have sufficient basis, regardless of how you record the $15,000.LJACPA | |
| 6 March 2006 | |
| I would record it as capital stock and APIC and contributions from the s/h to the corporation. Any distributions would decrease his basis, but a loan needs to be an arms length transaction with interest being charged and paid to the s/h and then reporting that interest income on the s/h individual return at year end. If it is a LOAN and the s/h wants the money paid back in installments, then the s/h loan approach is the correct approach. However, I agree with LJ on the capital stock and apic. | |
| 6 March 2006 | |
| How it's booked initially has to do with timing. Many folks are still operating under several year old law and booking initial capitalization to loans in part. That is not allowed. If it's initial money (pick your own timeframe, there are no regs...60 days?) it must go to stock and paid in additional. After that period, you can begin entering loans. | |
| 4 October 2006 | |
| I dug up this thread in a search. I have a similar situation but with much larger numbers. Shareholder contributed (or loaned) approximately $800,000 to the S-corp in one year. Losses total approx $355,000 so there is an obvious reduction in basis.
My questions how do you decide shareholder loans or capital? If she calls it capital can she take it out as a refund of capital at a later date when there is cash in the corp? | |
| 4 October 2006 | |
| Ordering coming out but what about going in? I believe she can call it loans or capital - I'm not sure which is most advantageous. | |
| 4 October 2006 | |
| And coming out: The corporation is not profitable, and has always been an S corporation. So without any AAA, E&P etc., if I called the $800,000 going in capital, wouldn't a withdrawl of say $100,000 be a non taxable distribution?
And on that note, if these were called loans: What happens if the shareholder advances $100,000, then takes a distribution of $50,000 and then advances another $100,000...does the timing of the in/outs make a difference or can they just be netted? Or would she have to call a portion of the payment taxable because her basis in the loan is less than its book value? | |
| October 4, 2006 | |
| I need to let others ring in here. After initially inc'ing, I've always taken new monies in as loans, can be repaid anytime, and you have the interest that can flow out, reducing the arguments about profits left behind and whether they should be included in compensation. There are some funky rules about loan contributions, repayments, etc. within the same year. I guess the main issue should be: Is she planning on repaying the 800k? If not, just record it as add'l paid in capital (watch your state legalities here...) and be done with it. At some point, yes, she can repay it and take is as a return of capital...assuming there's basis, of course. | |
Barbcolorado (talk|edits) said: | 15 April 2008 |
| I just found this thread too. My client (sole S/H in S-Corp) contributed $63,000 to her S- Corp to pay LT debt. She makes net profit yearly ~$40,000-50,000.
I guess I don't understand if there is any "issues" when she takes money out of the corporation in the future. Can I just book it against APIC, right? Instead showing it as distributions against NI... Thank you Is it time to go home yet?! | |
- Some 2009 questions & answers have been moved to a new discussion, still on the tax forum: Shareholders' Loans to S Corporations.
To join in on this discussion, you must first
log in.
