Hello again answer seeker,
Using the same example as I gave earlier, if your company makes a profit of $100,000, then that will be reported as profit to the partners and will flow through to the partners personal tax returns
as taxable income. It is the entire $100,000 profit that is being reported to you as taxable income -- not $20,000 profit and $80,000 loan proceeds.
When the company pays off a loan, that is not an expense for the company, and the payoff does not reduce the company's income. It strictly reduces the company's cash flow.
When your company takes out a loan from you or from anyone, it is put on the books as a debit to cash (which is an asset
account) and a credit
to notes payable (which is a liability
account). When the loan is repaid, those entries are reversed. But your income and expense accounts are not affected. Any income or loss that you had for the year remains at the same level as it was prior to repayment of the loan.
Taking the example a little futher -- let's say you gave your company a loan for $100,000 and they spent all of that money on advertising. Advertising is an expense which is deductible
for the company in the year that incurred the expense. So they take the $100,000 as a deduction from any taxable income they had for that year. Just because the money came from a loan does not mean that it is not considered an expense for the company.
The same is true for income. Just because the income was used to pay off a loan does not mean that the income is no longer there.
You are not being double taxed, because the $100,000 they report is from the income -- it will be split equally among all the partners, regardless of how much they pay back to you on your loan. So let's say there are 5 partners in the LLC and the company had profit of $100,000, and they pay you back $80,000 on your loan. The $80,000 is not reported to you as income. The $100,000 is reported as income and is divided by the 5 partners who report taxable income of $20,000 each.
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