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Should i pay wages

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Dec 26, 2008
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starstarstar 		Follow-up Question Answers?
by: Anonymous

Good follow up questions, but you did not provide answers....
What is the implication if you loan personal start-up funds to your LLC and then it is not profitable? I would assume your "pay" is just a loan repayment. Should you charge your LLC interest, at a reasonable rate, so you will actually make some money from your LLC?

I would assume at some point the LLC makes money, but what is the implaction if you need an additional loan to keep the LLC running? Can you keep loaning personal money to the LLC while simultaneously withdrawing loan payments (with interest) back to yourself?

Answer

Extending a loan is not a taxable event for either party.

Repayment of loans are not taxable either (for either party).

So your LLC can keep taking losses while making payments on old loans, and you can extend additional loans as well.

Be sure to create a paper trail in the form of promissory notes for the loans, and identify the payments as loan repayments (make up a payment schedule as well). Charge a reasonable rate of interest.

If the LLC is losing money, a tax deduction from the loss will flow through to the owners. This is regardless of whether the LLC has money in the bank due to additional loans.

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