S Corp Loan from S/H

[rfk]

How to handle etc.,

When a client, S/H of his S Corp., takes equity money out of his home and then "supports" or keeps his company afloat by using these funds, how is this handled on the 1120S? That is to say, he is incurring interest charges from his bank and wants to deduct these charges on his 1120S form.

Is there an agreement that should be made between the S/H and the corporation or some other event? I am not clear on how to exactly to advise and help this person "set-up" the accounting for tax purposes as to how this should be done.

Thank you for your help. Happy New Year!

[sea-tax]

First have the Shareholder and S-corp make up a promisary note. The shareholder made a loan to the business. The business makes a loan payment back to the shareholder and then the shareholder pays his mortgage from his personal account.

The Scorp gets to deduct the interest on the promisary not paid to the shareholder. The Shareholder picks up the interest as income and then deducts if applicable the home loan interest on shc a.

If I understand your first post this should work. Good Luck

[jainen]

deducts if applicable

>>deducts if applicable the home loan interest on shc a<<

Interest on up to $100K of equity loan is deductible as qualified home mortgage interest. Interest on any excess amount can be deducted as investment income expense (limited to investment income, such as the interest or deemed interest from the S-corp).