Answers · S corporations
How Are Shareholder Loans Recorded?
A bona fide shareholder loan is corporate debt; an equity contribution is capital. Substance and documentation control.
How it works
The rule, and what it turns on.
Notes, maturity, interest, repayment terms and actual repayment behavior support debt classification.
Example
$50,000 signed shareholder note: debit Cash, credit Shareholder Loan Payable; repayments split principal and interest.
Common mistakes
What we see go wrong, and what we do instead.
- No note.
- Posting advance to revenue.
A better approach
- Document debt contemporaneously or classify as equity if debt facts are weak.
Authority
Where this comes from, so you can check it.
IRC §§1366(d), 1367 and 1368; Form 7203 and instructions; IRS S Corporation Stock and Debt Basis guidance.
Educational information, not individualized tax advice. Treatment depends on your facts, entity classification and tax year, and IRS instructions change. Confirm your own position with us before relying on it. Mint Associates does not provide legal services.
Also asked
The same question, the other ways people put it.
- Loan From Shareholder vs. Capital Contribution
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