Record an Owner Loan to Your Business in QuickBooks

Money the owner lends the business is not income, so it never belongs in a sales or income account. Record it as a liability: add an account called Loan from Owner or Due to Shareholder (Other Current Liability if you expect to be paid back inside a year, Long Term Liability if not), then post the incoming deposit to that account. When the business pays the owner back, split the payment so the principal reduces the liability balance and any interest goes to Interest Expense. Money the owner puts in permanently, with no expectation of repayment, is equity instead, and it goes to Owner's Contribution or Additional Paid-In Capital.

Last updated July 2026.

Is an owner loan to a business taxable income?

No. A loan is borrowed money you owe back, and borrowed money is not revenue for anybody, whether the lender is a bank, a friend, or the owner personally. The deposit increases cash on the asset side and increases a liability on the other side. Your Profit and Loss should not move at all.

Coding an owner deposit to sales is one of the most expensive bookkeeping mistakes we see, and it is easy to make because the money arrives in the checking account looking exactly like a customer payment. The damage is real: revenue is overstated, the Profit and Loss shows income that was never earned, and if nobody catches it before the return is prepared, the business can end up paying tax on its own owner's cash. Repaying the principal later does not undo it either, because repaying principal is not a deductible expense. You end up taxed on the way in with no offset on the way out.

The same logic applies to the smaller version of this transaction. When the owner pays a business bill from a personal card or personal checking, that is also money lent to (or contributed to) the company. Record the expense, and post the credit side to the owner loan liability rather than to the business bank account, since no business bank account was touched.

Loan or capital contribution: which should I use?

Decide this before you create a single account, because the two paths land in different sections of the balance sheet and carry different tax consequences.

A loan means the company owes the money back. What makes it look like a loan to the IRS or to an auditor is substance rather than the label in your chart of accounts: a written promissory note, a stated interest rate, a maturity date or repayment schedule, actual payments that follow that schedule, and a genuine expectation on both sides that the money will be repaid and collected if it is not. Courts and the IRS weigh those facts together. An advance with no note, no interest, no due date, and no repayments can be recharacterized as a capital contribution, a distribution, or compensation, depending on the entity and the direction of the money.

A capital contribution means the owner is putting money in permanently in exchange for a bigger stake. There is no note and no repayment obligation. It posts to equity: Owner's Contribution or Owner's Investment for a sole proprietor, partner capital for a partnership, common stock plus Additional Paid-In Capital for a corporation.

If you want a loan, paper it before the money moves. A one-page note that names the parties, the amount, the rate, and the repayment terms costs nothing and is the single best piece of evidence you can have. Because shareholder loans sit on the balance sheet as genuine obligations, they also change how a lender underwrites the company and how anyone running a valuation of the business treats the debt line, so keeping them documented and current pays off well beyond tax season. Entity-specific treatment varies, so confirm the structure with your CPA before you commit to it.

How does entity type change the answer?

Sole proprietor and single-member LLC. You and the business are the same taxpayer, so you cannot meaningfully lend money to yourself. Bookkeepers sometimes still track an owner loan account for their own recordkeeping, but for tax purposes the money going in is generally just an owner contribution to equity and the money coming out is a draw.

Partnership and multi-member LLC. A partner can genuinely lend to the partnership, and a bona fide partner loan is a liability rather than a capital account increase. Because it affects each partner's capital account and the allocation of profits and losses, get the partnership agreement and your CPA involved rather than deciding it in the chart of accounts.

S corporation. This is where it matters most. A shareholder can only deduct losses passed through on the K-1 up to the sum of stock basis and debt basis, and debt basis comes only from money the shareholder lends directly to the corporation. The debt has to run straight from the shareholder to the S corp and it has to be bona fide under general federal tax principles. Merely guaranteeing a bank loan to the corporation does not create basis. Two more points worth knowing: a loan with a written note gives you cleaner treatment than an open account advance, and once losses have reduced debt basis, later repayments of that loan can be partly taxable to the shareholder (capital gain if there is a written note, ordinary income if there is not). Track basis outside QuickBooks with your CPA, because QuickBooks does not calculate it.

C corporation. A shareholder loan is a normal liability and interest paid to the shareholder is generally deductible by the corporation and taxable to the shareholder. Thin capitalization is the risk here: if the corporation is funded almost entirely by shareholder debt with little equity, the IRS can argue the debt is really equity, which would turn interest into a nondeductible dividend.

Do I have to charge interest on an owner loan?

You do not have to charge interest for QuickBooks to work, but the tax rules have opinions. Under Internal Revenue Code section 7872, loans between a corporation and a shareholder that carry no interest or a rate below the applicable federal rate can be treated as if market-rate interest were charged, with the imputed amount recharacterized (as a dividend or compensation when the corporation lends to the shareholder, for example). There is a general de minimis exception for aggregate loans between the same two parties of $10,000 or less, which does not apply if tax avoidance is a principal purpose of the interest arrangement.

The applicable federal rates are published monthly by the IRS and vary by loan term, so pick the correct rate for the month the note is signed rather than reusing an old one, and have your CPA confirm it. If the loan does carry interest, the mechanics are simple: the company books Interest Expense, and the owner reports the interest as income on their personal return.

How do I record an owner loan in QuickBooks Online?

Three steps: build the account, record the deposit, then keep the bank feed from undoing your work.

1. Create the liability account. Go to Transactions, then Chart of accounts, and select New. For Account type choose Long-term liabilities if repayment runs past twelve months, or Other Current Liabilities if it is due sooner. For Detail type pick Notes Payable (Shareholder Notes Payable is available on some accounts). Name it plainly: Loan from Owner, Due to Shareholder, or Loan from Jane Smith. Give each owner or shareholder their own account when more than one person is lending, because a combined balance is impossible to reconcile later. Leave the opening balance blank and let the deposit create the balance.

2. Record the money coming in. Select New, then Bank deposit. Choose the bank account the money landed in, put the owner in the Received From column, and set the Account column to your new Loan from Owner liability account. Enter the amount and save. That single entry debits cash and credits the liability, exactly right. The general mechanics are the same as any other deposit you record in QuickBooks, only the account behind it is different.

3. Handle the bank feed. This is where most owner loans go wrong. When the deposit downloads into For review, QuickBooks guesses, and its guess for an unmatched deposit is often Sales or Uncategorized Income. Worse, a bank rule someone set up months ago on the word DEPOSIT or a recurring transfer description can auto-categorize it to income before anyone looks. Open the line, change the Category to Loan from Owner, and confirm it. If the owner funds the business regularly, build a bank rule that points that specific description at the liability account instead of letting the generic one win. Our walkthrough on how to categorize transactions in QuickBooks covers the review screen in more detail.

How do I record paying the owner back?

Use Check or Expense, not a journal entry, so the payment matches cleanly against the bank feed. Select New, then Check (or Expense if it was an electronic transfer), choose the bank account, and put the owner in as the payee.

If the loan carries no interest, the whole payment goes on one line to the Loan from Owner liability account. If it does carry interest, split it across two lines: the principal portion to the liability account, and the interest portion to Interest Expense. Do not send the entire payment to the liability when part of it is interest, because that understates your expenses and leaves the liability balance wrong. The split works the same way as any other loan payment you record in QuickBooks, including bank loans and SBA or EIDL loans.

Check the balance sheet after each payment. The Loan from Owner balance should drop by the principal amount and should tie back to whatever amortization schedule or note you are working from. If the balance drifts, something got coded to the wrong side.

Owner money movements at a glance

Treat the last column as general orientation, not a filing position. Confirm your own facts with a CPA.

What if the business lends money to the owner?

This runs the other direction and it deserves more caution. Create an Other Current Asset account named Due from Shareholder or Loan to Owner, and code the outgoing payment there instead of to an expense. The company now holds a receivable from the owner.

The risk is that a shareholder receivable that keeps growing and never gets repaid stops looking like a loan. In a C corporation the IRS can treat it as a constructive dividend, taxable to the shareholder with no deduction for the company. In an S corporation or where the owner works in the business, it can be recharacterized as wages, which pulls in payroll taxes and penalties. Below-market interest brings section 7872 back into the picture as well. If the owner is really just taking money out, record it honestly as a draw or distribution instead of parking it in a receivable, and see our guide to owner's draws and distributions in QuickBooks for how those post.

Owner loan vs draw vs capital contribution

Three different transactions, three different homes on the balance sheet. A loan in creates a liability the company must repay. A capital contribution increases equity permanently and nothing is owed back. A draw or distribution takes money out against equity and reduces it. None of the three touches the Profit and Loss, which is the quickest sanity check: if an owner transaction shows up on your P and L, something is coded wrong.

One related trap: Opening Balance Equity. When a new file is set up, owner deposits sometimes get swept into that account and left there. It is a temporary holding account, not a home for owner funding. Clear it out to the correct liability or equity account, as covered in our note on Opening Balance Equity in QuickBooks.

How does this work in QuickBooks Desktop?

The concept is identical and only the menus change. In Desktop, go to Lists, then Chart of Accounts, press Ctrl+N, and choose Other Current Liability or Long Term Liability. Record the incoming money with Banking, then Make Deposits, using the owner as the Received From name and the loan liability as the From Account. Record repayments with Banking, then Write Checks, splitting the Expenses tab between the liability account for principal and Interest Expense for interest. Desktop's Loan Manager exists for amortized loans, but for a simple owner note a manual split is faster and easier to audit.

How do I fix owner deposits already booked as income?

Start by finding them. Run a Profit and Loss for the period, then drill into Sales, Other Income, and Uncategorized Income and look for round-number deposits, transfers from a personal account, or anything with the owner's name on it. Compare against the bank statements so you catch the ones a bank rule swallowed silently.

For an open period, the fix is a straight recategorization: open each transaction, change the account to Loan from Owner, and save. If there are many of them, the Reclassify Transactions tool in QuickBooks Online Accountant does them in a batch, which we walk through in our guide to reclassifying transactions in QuickBooks. Also delete or edit the bank rule that caused the problem, or it will happen again next month.

For a closed period, stop and call the CPA before you change anything. If a tax return was already filed with the inflated revenue on it, editing prior-year transactions puts your books out of agreement with the return, and the correct path may be an amended return, a current-year adjusting entry, or both. Reconciled periods are best corrected with a dated journal entry rather than by reopening old months. Document whatever you do, because next year's preparer will ask.

Get the deposits into QuickBooks before you categorize them

None of this works if the transactions never made it into the file. Owner funding often runs through an account the bank feed does not cover, a credit union that will not connect, or a period further back than the ninety days QuickBooks will download. Our converter turns a PDF bank or credit card statement into a .qbo file that imports natively, so every owner deposit shows up in For review ready to be coded to the loan account instead of guessed at. Start from the bank statement to QuickBooks Online import page, upload the statement, and bring the file in the same way you would any bank download.

Frequently asked questions

Is money I loan my business taxable income?

No. A loan from the owner is borrowed money the company owes back, so it is a liability rather than revenue, and it does not appear on the Profit and Loss. Coding it to a sales account inflates income and can inflate the tax bill. Repaying the principal is not a deductible expense either.

What account type should I use for a loan from the owner?

Use a liability account. Choose Other Current Liabilities if you expect repayment within twelve months, or Long-term liabilities if repayment runs longer, with Notes Payable as the detail type. Name it Loan from Owner or Due to Shareholder, and give each lending owner a separate account so the balances stay reconcilable.

Do I have to charge interest on a shareholder loan?

Not to make the bookkeeping work, but section 7872 can impute interest on corporation to shareholder loans that charge nothing or less than the applicable federal rate, with a general de minimis exception at $10,000 of aggregate loans between the parties. The applicable federal rates change monthly, so confirm the correct rate and treatment with your CPA.

Does a shareholder loan create basis in an S corporation?

A bona fide loan made directly by the shareholder to the S corporation creates debt basis, which together with stock basis limits how much of a pass-through loss the shareholder can deduct. Guaranteeing a bank loan to the corporation does not create basis. Once losses reduce debt basis, later repayments may be partly taxable, so track basis with your CPA.

What is the difference between an owner loan and a capital contribution?

A loan is expected to be repaid and sits in a liability account, ideally backed by a written note with a rate and a repayment schedule. A capital contribution is permanent, sits in equity, and creates no repayment obligation. The IRS looks at substance, so an undocumented loan with no payments can be recharacterized as a contribution or a distribution.

Can I pay myself back whenever I want?

Cash flow permitting, yes, but follow the note. Repayments that track a written schedule support the position that the advance was a real loan; sporadic repayments on an undocumented advance invite recharacterization. Split every payment between principal, which reduces the liability, and interest, which posts to Interest Expense.