I have been working diligently for years to get my business off the ground. I have been funding its monthly operation via my personal funds, each month lending the company (an LLC) just enough to pay the bills.

Each year, I have been claiming the business loss on my 1040.

Now the company is making money and can cover all of its debts with funds left over. Can I now use the monthly profits to repay the loans I made from my personal account without any tax consequence? Is essence, can I repay the loan to my personal account from the company funds without claiming the funds repaid as earned (or any other type) of income?

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    Did you draw up a formal note stating amount of the loan? If not you may have trouble. If you did, repayment of principal is not income but any interest paid is... and you may have to pay tax on a basic interest rate even if the actual rate is lower. I think it's worth paying for professional advice.
    – keshlam
    Jun 24 '15 at 22:57
  • Thanks for the answer. I did not write up a promissory note, but did keep immaculate records of each and every loan. I can very easily demonstrate the exact amount of money I lent to the company going back many years. Does that help my case?
    – mantua3
    Jun 26 '15 at 18:13
  • 1
    Comments go here, please don't add as an answer to the question. Jun 26 '15 at 18:36
  • It may help your case.
    – keshlam
    Jun 26 '15 at 21:31
  • There should be no tax consequence. However, the loan repayment won't reduce your companies profits either. So if you lent $10,000 to the company each year for four years because the company lost $10,000 a year, and now the company made $100,000 profit, then the company can repay your $40,000 and you pay no personal taxes, but the company still pays tax on the full $100,000 profits.
    – gnasher729
    Jun 27 '15 at 0:53

I'm a Finance major in Finland and here is how it would go here.

As you loan money to the company, the company has no income, but gains an asset and a liability.

When the company then uses the money to pay the bills it does have expenses that accumulate to the end of the accounting period where they have to be declared. These expenses are payed from the asset gained and has no effect to the liability.

When the company then makes a profit it is taxable. How ever this taxable profit may be deducted from from a tax reserve accumulated over the last loss periods up to ten years.

When the company then pays the loan back it is divided in principal and interest. The principal payment is a deduction in the company's liabilities and has no tax effect. The interest payment the again does have effect in taxes in the way of decreasing them.

On your personal side giving loan has no effect.

Getting the principal back has no effect.

Getting interest for the loan is taxable income.

When there are documents signifying the giving the loan and accounting it over the years, there should be no problem paying it back.

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