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Join nowI took out a personal loan to fund the capital expenses of a single member LLC that I setup for real estate purposes. Funds came to my personal account and were transferred to my business account, recorded in QB as Owner Equity Investment. Now that the project has positive net income, I would like the LLC to assume repayment of this debt.
What's the best way to handle this? Should these monthly payments just be added as an Owner's Draw or should the Note Payable be moved to the LLC?
If recorded as an Owner's draw, does this have any adverse tax implications? Since it's a single member LLC it's taxed as a sole proprietorship.
Solved! Go to Solution.
Should these monthly payments just be added as an Owner's Draw
yes
If recorded as an Owner's draw, does this have any adverse tax implications?
no
As a sole proprietor you are taxed on the net profit from the LLC, regardless of whether you take the funds out of the LLC
Should these monthly payments just be added as an Owner's Draw
yes
If recorded as an Owner's draw, does this have any adverse tax implications?
no
As a sole proprietor you are taxed on the net profit from the LLC, regardless of whether you take the funds out of the LLC
"recorded in QB as Owner Equity Investment."
That would be correct; you cannot loan to/from yourself, in this entity type.
"or should the Note Payable be moved to the LLC?"
There really cannot be a loan between you and your LLC, for a disregarded entity. However, the Banker can help you determine if they are willing to loan in the name of the LLC only. Most often, they make you sign Both ways, as the individual on the hook in case of LLC failure, so there isn't an opportunity for them to take a loss with this risk.
If this is a Secured Loan, such as, against Property titled to the LLC, they typically NEED that to be in the name of the LLC (or, again, your name as both the borrower and the co-signer).
You can talk to your Bank about this.
None of this precludes that interest expense from being Business, by the way. You can talk to your CPA about this.
"I was under the impression that this interest could not be expensed if this was a personal loan (to owner not LLC). Is that incorrect?"
Not necessarily. If the purpose is a Business Purpose, then it is a Business Expense. For example: You buy a Road Grader, because you are a Paving Contractor.
"If I can expense the interest, could I just split the payment between Owner's Draw (for principal) and Interest Expense?"
The disregarded entity might be able to track this as a Liability in the QB data file, even though it is not in the name of the LLC. A Disregarded entity for tax filing purposes doesn't not really report a Balance Sheet.
"I'll be making these payments monthly from the business account to the loan acct (just added as a payee)."
Do NOT get your guidance for Life Issues from the Internet. Go to your own CPA.
You first asked about having the LLC "assume" the loan payments. We have reviewed that there are a Lot of issues, which come into consideration, and this is really a request for Legal and Tax Rule Guidance, not "how do I use QB for this."
This is a non-profit society INC, the owner make the Loan Payable for cover expenses. How should I register this Loan Payable?
Hello there, @lnacosta!
You can the option to create a liability account so you can enter your loan payable. I'll show you how.
In addition, here's an article you can read for ideas about how you can enter a loan: Set up a loan in QuickBooks Online.
Meanwhile, if you're using a desktop version of QuickBooks, here's how you can create an account to start tracking our loan:
From here, you can utilize the Loan Manager feature and its function to learn about the details of your loan. You can read through this article to learn more: QuickBooks Loan Manager.
Keep me posted in the comments if you have any other questions. I'll be here to lend a hand.
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