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Thread: Company loan to employee

  1. #1
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    Default Company loan to employee

    Can one of the employees take a loan from my company with intention to pay back within one year? If so, questions:

    - What is the right way to show that transaction in QuickBooks? Do I need to use a special account and/or account type for that?
    - Would that loan be counted as an income to that employee for 2012?
    - Can company write off such loan as some type of business expense for 2012?

    Thanks!

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  3. #2
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    - Yes, you should set up a special asset account and call it something like "Employee Loans"

    - The loan is not income to the employee if it is expected to be repaid. Unless you charge interest on the loan at least as high as the IRS' Applicable Federal Rate (AFR), then the employee will have to recognize income to the extent of the interest. This is called "imputed interest" and is treated as additional compensation to the employee. The AFR changes monthly. For short term loans (3 years or less) made in May 2012, the AFR is 0.28%

    - The loan itself cannot be deducted when made. It is an asset, not an expense. If an amount is taxable to the employee for imputed interest, then the company gets a deduction in the same amount.

  4. #3
    Mr. Tax Man Array
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    I agree with David's comments. Probably want to classify it as an "other asset" within QuickBooks.
    Small Business CPA
    "A tax loophole is something that benefits the other guy. If it benefits you, it's tax reform."

  5. #4
    Member Needs New Keyboard Array jamesray50's Avatar
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    Is the employee going to pay you back through a payroll deduction? (recommended). If so, you would need to set up a payroll item for the deduction and have it point to the Employee Loan account.

  6. #5
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    Thank you very much everyone, appreciate your inputs. Now I have a clear understanding what/how do to this.

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