I am putting initial investments in my own LLC, and as I started accounting I want to know how to treat it better - make it a loan to LLC or make it equity investment?

It might take about half a year for me to start making profit, so far I am just putting money in from my own personal funds.

What would be more advantageous in tax terms? I am planning to eventually do distributions from LLC to partners.

  • 1
    Is it in the US? – littleadv Jan 10 '15 at 21:13

If you just make a capital contribution to the company it is not a taxable event.

If you're the owner, lending only makes sense if you want the company to pay you interest (if you have partners who aren't lending money, for example) and you want to be compensated for lending, a loan would allow that. But the interest is taxable as income to you (1099-int) and the company can expense it.

But a capital contribution is much easier and you can take a distribution later to get paid back. Neither event is taxed, but you cannot take interest.

|improve this answer|||||
  • I have partners who contribute. I contributed a bit more, so I might have part of the investment as a loan and part as equity investment. – Roman Goyenko Jan 10 '15 at 19:57
  • 1
    @RomanGoyenko if you structure it as a loan to a partnership, you'll need all the partners to sign off, since they'll be taking on a liability. – littleadv Jan 10 '15 at 21:14

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.