Loans TO Shareholders

[Unregistered]

Loans to Shareholders S Corp, do they affect basis and/or at risk limitations?

If they affect basis how do you record on the Shareholder Basis worksheet? As a negative?

[Bees Knees]

Loans from the S corporation to the Shareholder do not affect basis, provided the loans are legitimate.

[Snaggletooth]

I deduct loans from basis

...whether I should or not. Essentially the basis only matters when there is a disposition, or in rare cases where income results because basis drops below zero.

Additionally, I discourage loans over $10,000 to stockholders, because I believe this is a red flag. And I tell my customers this. Also, if the loan is on the corporate books for longer than a year and there has been no payback, I will impute interest if there isn't any written agreement giving rise to interest already.

And I will say this, for what it's worth. If you have a client who creates these loans, refuses to absolve them with dividends, and has no intention of resolving the debt at some point, he is headed down the WRONG direction. To begin with he thinks there is a free lunch. Secondly he's going to give you fits because he won't stop there.

I put the brakes on at $10,000, and impute interest, to discourage this practice. Client most of the time deals with the problem when faced with this.