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How can I show the transferring of funds between different companies in the Chart of Accounts?

I have an S-Corp and an LLC. At times, I transfer funds from one of these checking accounts to the other one when necessary. Because these are two separate companies, they have two separate company files. What kind of account should I set up in the Chart of Accounts to record these transfers?  I also do this with my personal account, but I just created an "owner loan" for which to show debits and credits. Should I create a business to business loan in each company file?

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Best answer 12-10-2018

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It really depends on the relationship between you and eac...

It really depends on the relationship between you and each entity, and the details of each entity.

For instance, there is no Owner in a corporation; you would be a Shareholder, and might not be the only shareholder. Corporations are their own people; the Supreme Court told us so. This is loan From Shareholder, a Liability, when you put you own funds into the corporation's bank account.

For the LLC, if there are partners, members, or it is elected to be treated as a Corporation, it is the same concept for money In.

For both situations, money Out is repayment of that loan.

For the LLC with no partners, just you, and treated as a disregarded entity, money Out is a Draw from Equity. Money In is a return of Equity, or a deposit back into Draw, or tracked as Investment Equity.

For money from the corporation to the LLC, it might be Other Asset, as Loaned; but, it might be Your Distribution, instead. However, I don't know if your CPA is aware of these activities and has counseled you on what you should or should not be doing, here. You don't remove value from a corporation "as needed."

You should likely run all of this past your own CPA.

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Established Community Backer ***

It really depends on the relationship between you and eac...

It really depends on the relationship between you and each entity, and the details of each entity.

For instance, there is no Owner in a corporation; you would be a Shareholder, and might not be the only shareholder. Corporations are their own people; the Supreme Court told us so. This is loan From Shareholder, a Liability, when you put you own funds into the corporation's bank account.

For the LLC, if there are partners, members, or it is elected to be treated as a Corporation, it is the same concept for money In.

For both situations, money Out is repayment of that loan.

For the LLC with no partners, just you, and treated as a disregarded entity, money Out is a Draw from Equity. Money In is a return of Equity, or a deposit back into Draw, or tracked as Investment Equity.

For money from the corporation to the LLC, it might be Other Asset, as Loaned; but, it might be Your Distribution, instead. However, I don't know if your CPA is aware of these activities and has counseled you on what you should or should not be doing, here. You don't remove value from a corporation "as needed."

You should likely run all of this past your own CPA.

View solution in original post

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I knew the answer would be complex.  Thank you for taking...

I knew the answer would be complex.  Thank you for taking the time to answer.  My husband and I are the shareholders of the S-Corp, and the members of the LLC, so it has been really easy to arrange borrowing and repayment!  But, as you have stated, the CPA probably wouldn't advise these movements due to the type of reporting we pull for year-end tax prep.  Thanks again!
Established Community Backer ***

"My husband and I are the shareholders of the S-Corp, and...

"My husband and I are the shareholders of the S-Corp, and the members of the LLC, so it has been really easy to arrange borrowing and repayment!"

That doesn't make it Borrowing and repayment, though. That is my point. It might be Distribution out and equity in. Or/ Shareholder Loan out, and Member Loan in.

"But, as you have stated, the CPA probably wouldn't advise these movements due to the type of reporting we pull for year-end tax prep"

Ask them about "Commingling." Search for that, to see how the IRS treats it.


Frequent Explorer **

Re: "My husband and I are the shareholders of the S-Corp, and...

S corps and LLC (exclude C) are pass through entities and money out is Owner Distribution reportable in 1040.

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Re: "My husband and I are the shareholders of the S-Corp, and...

@rkumar1

 

Distributions from S corps, and Draws from LLC or Sold Proprietorships, are not the tax reporting event. This money out is not part of the 1040 reporting; the Entity has its own tax form that is passed to the 1040, and the Taking of money or not is not part of that reporting on the 1040, unless it Exceeds the owner's basis in the entity, which means they took More than they were entitled to = that might be taxable to the person taking the funds. Taking as distribution or draw, in and of itself, is not a taxable event; taking or not taking doesn't change the tax reporting for that entity, excluding taking more than Basis.

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