If I borrow money from my 401(k) to loan to my LLC, can I expense the loan interest?
The LLC is paying me P+I back every month at the same rate that I am paying P+I back to the 401(k).
So this would be a wash for me personally (interest income from LLC equals interest expense of 401(k) loan), right? So I don't have to report interest income?
And an interest is an expense for the LLC?
Thanks,
Nathan
Borrowing from your 401(k) should be the last resort in anything that you do. It is your retirement.
If you do decide to borrow, make sure that it is a sound LLC as you usually have a maximum of 5 years to pay back whatever you borrow. If your LLC is gone, you will still have to pay back the 401(k) loan.
The interest expense will be a deductible expense of the LLC, and you will have interest income from the LLC. Make sure you give yourself a 1099INT at the end of the year.
Matt Harris, CPA
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