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sb-alehzayis
Level 3

Recording an interest-free loan issued by the company to a family member

Hi,

I am using Quickboooks Desktop Pro 2020.

Our business has issued an interest-free loan to another business.

Where do I record the loan, and the subsequent payments (to be paid in installments)?

Thank you.

Solved
Best answer February 06, 2022

Best Answers
MichelleBh
Moderator

Recording an interest-free loan issued by the company to a family member

Let's record your family member loan in QuickBooks, @sb-alehzayis. You're in the right place for instructions. 

I'll help you how to record your loan in your QuickBooks Desktop. This way, you can start managing them in your account. 

 

To begin with, let's create a liability account if you don't have this yet. Follow the steps below: 

 

  1. Go to the Lists menu, then select Chart of Accounts.
  2. Right-click anywhere and click New.
  3. Pick Long Term Liability in the Other Account Types drop-down, then tap Continue
  4. Enter Account Name in the field. 
  5. Complete the necessary fields, then hit Save & Close.

 

Next is to set up the vendor or lending company profile to personalize the transactions. Proceed as follows:

 

  1. Go to the Vendors menu, then select Vendor Center.
  2. Choose New Vendor and enter the bank name or the company you need to pay for the loan.
  3. Click OK

 

After that, create an expense account to track the loan interest payments or fees. Do the following:

 

  1. Press Ctrl+ A to open the chart of accounts page, then right-click and select New
  2. Select Expense and click Continue
  3. Enter a unique name in the field and hit Save & Close

 

Following that, let's record the loan amount by making a deposit. Then to record the loan payments, I'd suggest using a check. For the complete details, see this link: Manually track loans in QuickBooks Desktop.

 

Did you know that you can memorize transactions and set up a reminder for your upcoming payments in QuickBooks? To learn more about the process, click the following links below: 

 

 

I always check my notifications to keep track of responses. That said, feel free to tag my name in the comments area if you have a follow-up question. Happy to help you again. Take care, sb-alehzayis.

View solution in original post

Rainflurry
Level 12

Recording an interest-free loan issued by the company to a family member

@sb-alehzayis 

 

FYI: Interest-free loans between related entities is a big no-no from the IRS's perspective.  Loans between related parties should be structured like any other loan (written agreement with terms).  The interest required to be collected is minimal but the penalties can be significant depending on the size of the loan.

View solution in original post

6 Comments 6
sb-alehzayis
Level 3

Recording an interest-free loan issued by the company to a family member

Clarification: the family member is proprietor of the business to whom the loan was issued.

MichelleBh
Moderator

Recording an interest-free loan issued by the company to a family member

Let's record your family member loan in QuickBooks, @sb-alehzayis. You're in the right place for instructions. 

I'll help you how to record your loan in your QuickBooks Desktop. This way, you can start managing them in your account. 

 

To begin with, let's create a liability account if you don't have this yet. Follow the steps below: 

 

  1. Go to the Lists menu, then select Chart of Accounts.
  2. Right-click anywhere and click New.
  3. Pick Long Term Liability in the Other Account Types drop-down, then tap Continue
  4. Enter Account Name in the field. 
  5. Complete the necessary fields, then hit Save & Close.

 

Next is to set up the vendor or lending company profile to personalize the transactions. Proceed as follows:

 

  1. Go to the Vendors menu, then select Vendor Center.
  2. Choose New Vendor and enter the bank name or the company you need to pay for the loan.
  3. Click OK

 

After that, create an expense account to track the loan interest payments or fees. Do the following:

 

  1. Press Ctrl+ A to open the chart of accounts page, then right-click and select New
  2. Select Expense and click Continue
  3. Enter a unique name in the field and hit Save & Close

 

Following that, let's record the loan amount by making a deposit. Then to record the loan payments, I'd suggest using a check. For the complete details, see this link: Manually track loans in QuickBooks Desktop.

 

Did you know that you can memorize transactions and set up a reminder for your upcoming payments in QuickBooks? To learn more about the process, click the following links below: 

 

 

I always check my notifications to keep track of responses. That said, feel free to tag my name in the comments area if you have a follow-up question. Happy to help you again. Take care, sb-alehzayis.

Rainflurry
Level 12

Recording an interest-free loan issued by the company to a family member

@sb-alehzayis 

 

FYI: Interest-free loans between related entities is a big no-no from the IRS's perspective.  Loans between related parties should be structured like any other loan (written agreement with terms).  The interest required to be collected is minimal but the penalties can be significant depending on the size of the loan.

sb-alehzayis
Level 3

Recording an interest-free loan issued by the company to a family member

Thanks for the info!

Just wondering, why is that?

Rainflurry
Level 12

Recording an interest-free loan issued by the company to a family member

@sb-alehzayis 

 

Someone may be more knowledgeable about the history than me but, from my understanding, it dates back to the 1980's when prime interest rates were ~10% and related entities saw an opportunity to loan money at below-market rates as a tax avoidance strategy.  The lender would report less income as a result of the below-market or no-interest loan, thereby reducing taxable income - not something the IRS is fond of.  The IRS has the right to increase the interest rate so the lender reports more income than was actually received.

 

The IRS publishes AFR (Applicable Federal Rates) each month so you can look up the minimum interest rate that should be charged between related entities. 

sb-alehzayis
Level 3

Recording an interest-free loan issued by the company to a family member

Got it - thanks for the explanation!

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