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pvltpj
Level 1

Single Member LLC/S Corporation Owner's investment vs. Loans

I established an LLC, then there was a several month period before receiving approval to be taxed as an S Corporation. Before the business checking account was set up, I was making all transactions from a personal checking account.

 

For that time period both before and after the S Corporation election, with regard to transactions in the personal checking account, is it okay to record all expenses as myself loaning money to the business, and record all income as a loan the business made to me? Under which accounts would I categorize these in Quickbooks?

 

Or do I have to record transactions before S corporation election as owner's draws/investments and transactions after the S corporation election as loans?

All of the above is before payroll was set up.

Thanks for any help.

2 Comments
john-pero
Community Champion

Single Member LLC/S Corporation Owner's investment vs. Loans

What you chose to do as far as I would guess is only be taxed as if you are a S corp. It has nothing else to do with making you an  S corp, which requires establishment first as a C corp with an election for subchapter S. Your member equity contributions, which reflect your personal funds input, remains the same.

 

If you have a brand new FEaiN different than the one established with your LLC and have actual corporate documentation then it is different. You have two tax returns for this year. One as an LLC which does not have to be final as you can continue to operate your LLC, and one for the S corp for only the time from approval forward unless you acted as an s corp from day one which eould require you having already been receiving a reasonable W2 wage all along, for which you would have needed a FEIN anyway.

 

Money that a single member puts in or out of a LLC is plain equity. In multi member situations members can receive business deducted payments for work but not a single member.

 

In a S corp your money in is in the form of shares purchased and shareholders can loan money to their S corp but i would caution to avoid it as a single shareholder and determine also if you are as i posited possibly still an LLC but with requirements of you being an employee

pvltpj
Level 1

Single Member LLC/S Corporation Owner's investment vs. Loans

I didn't know there was an actual status as S Corporation; I thought it was just a tax election, but yes you are right, I did not do anything with a C corporation or get the 2nd number, I have an LLC that just elected to be taxed as an S Corporation.

So I am okay to use owner's draws and owner's investment accounts from the beginning of the company, even though it took a couple months for the IRS to approve the S Corporation election? I thought I read on this Quickbooks community that LLCs do not do owner's draws and owner's investment accounts on the books, but I guess I was getting confused with this actual S Corporation entity.

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