Whether to pay expenses?

[song]

Hello!
I've set up a LLC, and have received a loan to cover an initial asset purchase, plus a little to cover some startup expenses.

My goal is to pay off the loan as quickly as possible (naturally). During the first year, I will have some personal travel expenses (i.e. mileage). I want to be compensated for these expenses, however this means it will take longer to pay off the loan.

So, now for my question. Can the company delay in compensating me for these expenses until I get the loan paid off?

Example: In 2007 the company reimburses me for travel expenses in 2005.

Thanks.

I believe you previously indicated you filed your LLC as an S-corp? (LLC-1120S) If your loan is not a loan direct from your personal bank account, you do not get basis to deduct your expenses as personal guarantees do not count like they would if you were a LLC-1065 or LLC-1040. Of course, if you did invest amounts from your personal account you would have a deduction/loss even without income.

The expenses need to be deducted by the LLC in the year occurred or within a reasonable time from the date of the expense. waiting until 2007 would not, in my opinion, be a reasonable time.

[jholla27]

OldJack, could he/she have the company reimburse him now, then loan the funds back to the company at 0% for balloon payment in 2007?

I also believe you need to charge reasonable interest on the loan if it is long-term like it is...

Originally Posted by gigalot

OldJack, could he/she have the company reimburse him now, then loan the funds back to the company at 0% for balloon payment in 2007?

Yes, the company could reimburse now for the expenses and the money be loaned back to the company from the shareholder which would create basis. If the loan is less then $10,000 then no interest needs to be charged or paid.

If the business is a LLC-Scorp and has a loss (with the expense reimbursed) the shareholder would get to deduct the loss if the shareholder has basis. It sounds like the business borrowed money from a lending company and spent the money creating a loss when the loan does not give the shareholder basis to deduct anything. S-corp tax treatment is very technical and holds lots of tax traps for those that don't know the tax law.

This would not be a problem other than the LLC elected S-corp status because the shareholder wants to save a couple of bucks on self-employment tax.