Loan to my LLC

Forum|Forum|1 year ago
November 13, 2024
2 replies
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Hello! I have taken out a home equity loan and am lending the funds to my business. My business will pay me back at the same terms as my bank HE loan. Will I need to issue some kind of 1098 or 1099 form between my business and I to account for the interest expense for my LLC and interest income for me, which then offsets the interest form I get from my bank? I understand it will be accounted for as interest expense on my LLC's books. I am hoping Turbo Tax would report this correctly as long as I enter it as interest expense for my LLC, and then the interest expense to the bank that I report personally is offset by the interest income from my LLC. This way, it seems there is no double dipping on the interest expense tax benefit. It transfers to the LLC. Please let me know how to go about doing this right and if I am thinking about it correctly. Thanks. - Mike

Ask the Experts - Biz Tax Moves - Nov 2024

Anonymous_

Employee

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mceccarelliAuthor

This is a dual member LLC. My souse and I. We file married jointly. Is the answer the same?

Anonymous_

Employee

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Cindy4 12

You are correct! Yes, the IRS does allow business owners to deduct interest on loans taken out for business purposes. No, they don't allow double-dipping.

If your LLC is reported on a Schedule C as a sole proprietor, you are what is known as a "disregarded" entity by the IRS. That means you're business is not a separate entity from you for tax purposes. A loan isn't counted as income because it is expected to be paid back, so there is no tax reporting other than the interest expense on the Schedule C, and TurboTax will guide you where to enter this when entering your self-employment income and expenses.

If your LLC is reporting as a separate tax entity on a form 1065 for partnerships, or 1120/1120-S for corporations, that will have different reporting aspects. Ideally, there will be a loan agreement along that reflects the interest rate/amounts, and the shareholder would report it as interest income. The interest rate must be an Applicable rate. Sometimes the IRS may look at these loans as equity, rather than loans and disallow the interest expense.

Hope this helps!

Cindy

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mceccarelliAuthor

Thanks Cindy! So, I will draft a loan agreement from myself to the LLC. Then when I file my taxes, I will enter it as interest expense for the LLC and that will come through the 1065 partnership forms and K1s to my spouse and I. Is it then classified as interest income for us or is it investment income? Will TurboTax somehow ensure I report it correctly?