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Tax Law (Questions About Taxes)/LLC Loan Tax Implications


If you have an LLC and take on a loan, can you repay that loan before the members of the LLC are taxed on the income or do you have to do it after?

So for example:
- LLC is split between 3 owners, 45/45/10
- LLC takes on a $200,000 loan (I assume the LLC does not pay income tax on that since you have a $200,000 liability as well)
- LLC generates $500,000 in revenue

LLC wants to pay off the loan, would it be:
1. $500,000 revenue minus $200,000 liability (to pay off the loan) = $300,000 taxable income to be split 45/45/10
2. $500,000 taxable income split 45/45/10 then pay the $200,000 from the leftover money after individual taxes are paid on the $500,000?

If it is #2 it sounds to me like you would need to generate ~$285,714 profit (assuming for simplicity a straight 30% tax rate) just to pay back the $200,000 loan without any interest ($85,714 would go to taxes). Does that make sense?


sorry for delay.  Am building a new house and did not see your original email.

Loan is tracked and treated separately from income and net income.

Loan and income are not really related.  And revenue and income (net) are not really related (connected obviously)

And you did not indicate if all 3 or any of the 3 are personally liable for the loans

So.. a wee bit more information needed.

But short story long.   the net income will be taxable to the llc members regardless of the loan is paid or not.

Say llc makes 400k net and does non pay anything on the loan. Still 400k of k1 to the members.  same 400k to members if you paid the loan from available casH and paid off loan intirely.

As you note, this is a problem when uou make 199k income and want to distribute cash to pay member tax and pay the loan.  If you tried to do both out of the 199k.  You would obviously fall short.

Bigger questionare all 3 active? (Active equally?)

Better tax planning is available.

Send me a _new_ question and mark it private.(there is a box to check to hide our cconversation)  I will reply with my contact info.


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Tax and general business including hospitality related (hotel mgmt degree and experience in industry prior to obtaining ms tax and cpa).


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