Tax Implications of Debit Shareholder Loans

Why would a shareholder of a closely held construction company owe the company money and have it show as a debit loan/receivable on the company books? Let’s consider some possible explanations: • The shareholder is using the corporate checkbook for personal expenses that are reflected as a loan; • The shareholder needs to borrow funds for acquisition of property and is using the company for the down payment. It may be business-related: For example, the down payment could be needed to purchase an owner-occupied property in which the construction company is located and is now paying rent; or • At the end of the year, distributions are reclassified to a receivable to ensure there were not distributions in excess of basis taxable to the shareholder. Regardless of the reason, money has left the company and a debit shareholder loan must now be addressed. This article will cover the tax issues associated with such loans, focusing on implications to S corporations… read more →