Recording a salary reduction as a loan to the company?

Thank you for providing us with the details of your current situation, @HalloweenGal. We'll help you record the salary deduction as a loan inside QuickBooks Desktop (QBDT).

Before we dig deeper into your concern, know we appreciate you for sharing the ideas you've come up. If you're using the paycheck method, you can set up a deduction payroll item for the loan and add it to the owner's setup when running a paycheck. Here's how:

1. Access your QuickBooks Desktop company.
2. Go to the Lists Menu, and then select Payroll Item Lists.
3. Click the Payroll Item button and then choose New.
4. Select Custom Setup and click Next.
5. In the list of Payroll item type, choose Deduction and then click Next. Enter the name of the deduction and then click Next.
6. Enter the necessary details and have the deduction setup to be track using a Liability account.
7. Set the Tax tracking type to None, and then click Next. Press the Next button in the Taxes page and then choose Neither.
8. In the Gross vs. Net page, choose when you want it to calculate.
9. Lastly, click the Finish button to wrap up the setup.

In case you're unsure what accounts to use for the payroll item setup, we recommend contacting your accountant. This way, they can help you set it up and complete the task. If you don't have an accountant, you can visit this page to get one: Find a QuickBooks ProAdvisor.

However, if you'll be using a check to settle the loan, we recommend checking article to know more about how to track and pay a loan inside QBDT: Manually track loans in QuickBooks Desktop.

Additionally, you may want to create a backup copy of your company file and generate a report to ensure your data stays accurate inside the program. Feel free to visit these articles:

• Understand reports.
• Back up your QuickBooks Desktop company file.

Please don't hesitate to visit the Community space if you need further assistance recording this, @HalloweenGal. You can also post here again if you have any additional QuickBooks-related concerns. We'll get back to you as soon as possible. Stay safe.

@HalloweenGal  RE: The owner of the company I work for took a reduction in her salary to help with cash flow in the company. I need to be able to record this as a "loan" to the company (that will eventually be paid back) but since no actual funds came into the company, I'm lost on how to record this?

Hmmm. I think what you're describing is illegal. Essentially what you're saying is that the owner is reducing their salary, but isn't really. Instead, in lieu of their salary the company owes them money, to be paid as an additional salary at a later time. 

If this is correct, then you can't do that. It's illegal because the government wants their payroll tax money and this is seen as hiding the employee salary - and also as holding payroll.

It's similar to the laws that say an owner/employee has to pay themselves a reasonable market salary, which are there so the government can collect payroll taxes on that salary.

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On the other hand, if the owner is just reducing their salary with no debt owed to them as a result, and the reduced salary still qualifies as a reasonable market salary, then it's not illegal.

Probably an even better approach is to pay the owner their full salary, and fully tax it, and then the owner can loan the company money either a) as a net deduction on the paycheck or b) by writing the company a check or transferring money into the company.  When using either of these methods, use a liability account (something like "Owner Loan") if the money is to be paid back. Or, if that isn't sure, you can use an Equity account like default Owner's Equity for the funds, which then increase the equity in the business for the owner.