Officer's Loans

Whether we call it officer or shareholder loans, the point here is either money loaned by a business owner to the business, or money the business loaned to the business owner. The issue that often arises is along the lines of whether or not, when it is the company loaning the money to the business owner (the business owner taking money from the company but calling it a loan), does that constitutes income (to the business owner)? The basic answer is no – while it might represent, for certain purposes, cash flow to that owner, it does not represent income. 

While this answer has nuances, it might change depending on the issue of the extent of control that owner has over the business. If we assume for the moment that owner is a player in the business, has control and is a decision maker, then as an oversimplified general comment, by taking money from the Company as a loan, rather than treating it as payroll, the company does not have that payroll expense. Thus, the company in a sense has that much more income (that much less of an expense). If the person at issue has control over that business, then what we’re really doing is saying that by taking a loan instead of salary, that owner has less direct personal income, but has more income left in the business that he/she owns/controls. In that sense, economically, it is a wash. This an oversimplification, and doesn’t address various nuanced issues.