Bank loans to small business

Banks are often the accompanist to this common S corporation blunder: Banks often will loan money directly to your S corporation to buy equipment, building, etc. As odd as it sounds, have the bank loan you the money to you personally and then you loan the money to the S corp.  In order to take any losses of the S corporation, you must have at least that much basis (see e-mail sent last week) in your S corporation. But you only get basis from money you’ve personally invested in or personally loaned to the corporation. Bank loans made directly to the S corporation do not count. This S corporation tax mistake gets made all the time. S corporation owners have loans made to the S corporation but then can’t take any deductions because there is no basis! To add insult to injury, the S corporation loan may be personally guaranteed or dual titled (loan made to both S corporation and person) and still no deduction. If you have any questions about borrowing money from or lending money to your small business, please give me a call.