# Tri-County Tire LLC — Tax Review Request (Owner Loan + Depreciation) **From:** Ledger **To:** Rex **Date:** 2026-05-24 **Client:** Tri-County Tire LLC (slug `tri-county`) **Priority:** Awareness now; action when Phase 1 anchor + client records land **Engagement context:** Major cleanup engagement spanning Jan 1 2025 → present. Full plan: `Team Inbox/Tri-County Tire/2026-05-24 - Ledger - Cleanup Map - Master Plan.md` --- ## Why you're being looped in Two tax-sensitive findings surfaced in the first-pass diagnostic that you should weigh in on before we restate any of this. I'm not asking for action this week — I'm getting you in the loop so when Phase 0 inputs land (target 1-2 weeks), we can move fast. --- ## Issue 1 — Owner loan: "Due from Owner Riley" $830,317 (with negative interest accrual) ### What's in the books | Account | Balance | Location on BS | |---------|--------:|----------------| | Due from Owner Riley (id 1150040082) | $830,317 | Accounts Receivable section (misclassified) | | Interest from Owner Riley (id 1150040083) | -$4,926 | Also in AR section as contra | | Riley Nolt (customer 215, owner) | -$35,000 | QBO AR module (separate from above) | So we have the same owner showing up in three places: a large GL "loan-in-AR" balance, a partial interest accrual against it, and a QBO customer record with a credit balance. Almost certainly the bookkeeper has been trying multiple workarounds without a clear loan-treatment decision. ### Conversion-date context (newly confirmed today) The QBO file was created in early 2025 with **only $197K of opening cash and no other opening balances**. That means the $830K owner loan grew **entirely during 2025-2026**. This is not an inherited balance — it's $830K of net draws over 16 months. At a $7-8M revenue business with ~13% net margin, that's roughly **40-50% of annual net income flowing out to the owner as loan, not distribution or salary**. ### Questions for you 1. **Entity structure** — I don't have it yet (asking client in Phase 0). Working assumption: LLC, taxed as either S-corp or sole prop/disregarded. Treatment differs significantly. 2. **Bona fide loan vs. deemed distribution / wage reclassification risk** - If S-corp: deemed distribution risk if not documented as loan; salary reclassification risk if owner is also officer drawing this much without W-2 wages (I see TCT Salaries & wages YTD $167K — confirm if owner is on payroll) - If sole prop / disregarded LLC: less acute but still imputed interest under §7872 if below-market 3. **§7872 below-market loan rules** — should we be imputing interest for both sides (income to company, deemed distribution back to owner)? AFR table for which term? 4. **2024 tax return** — does the 2024 return show any owner-loan balance? We need to anchor the cleanup against what was reported. 5. **Going-forward posture** — proactive formalization (written loan agreement, repayment schedule, market-rate interest) vs. reclassification of historical draws. Your call to recommend. ### What I'll have ready when you can engage - Entity structure confirmation from client - 2024 tax return + Form 1120-S K-1 (or equivalent) if applicable - Month-by-month GL detail of how the $830K grew (when did each draw post, any repayments) - Current account treatment of "Interest from Owner Riley" -$4,926 (clearly someone tried partial AFR) ### What I'm asking from you A short tax memo with your recommended treatment, ideally before Phase 4 execution. Phase 4 is gated on this — I won't restate the loan account until I know what to restate it *to*. --- ## Issue 2 — Fixed assets: zero infrastructure, possible 2024 return mismatch ### What's in the books | Account | Balance | |---------|--------:| | Large Equipment Purchases (the ONLY Fixed Asset account) | **-$77,447** | | Accumulated Depreciation accounts | **none exist** | | Depreciation Expense accounts | **none exist** | Fixed assets can't be negative. Likely cause: depreciation was posted as a credit to the gross asset account instead of to a separate accumulated-depreciation contra, OR an asset disposal was booked wrong. Either way, the books have **no formal depreciation infrastructure** for a tire shop with $77K+ in equipment. ### Why this matters for tax 1. If the 2024 tax return (filed by whoever filed it) included a depreciation schedule (Form 4562 / §179 election / bonus depreciation), the books are inconsistent with the return — book/tax difference that's never been tracked 2. A tire shop with $77K+ equipment likely qualifies for §179 or bonus depreciation; if those elections were made on 2024 return, we need to track the basis difference 3. Going forward, we need a proper book-and-tax depreciation method recommendation from you so we can stand up the COA correctly in Phase 7 ### What I'm asking from you 1. Review the 2024 tax return depreciation schedule once client provides it 2. Recommend book + tax depreciation method (MACRS / SL / 179 / bonus split) for the equipment Tri-County has 3. Flag any disconnect between what was deducted on the 2024 return and what's in the books --- ## Timeline expectations | When | What | |------|------| | This week | Read this memo for context; no action | | Within ~2 weeks (Phase 0 inputs landing) | I send you the 2024 return + entity confirmation + owner-loan account GL detail | | Within ~4 weeks (Phase 4 starts) | Need your owner-loan tax memo before I touch the $830K balance | | Within ~6 weeks (Phase 7 starts) | Need your depreciation method recommendation before I rebuild the FA register | If any of this triggers urgency I'm not seeing (e.g., 2024 amendment risk, estimated tax exposure for 2025), say so now — I'd rather adjust phase ordering than discover the issue mid-cleanup. --- ## Reference - First-pass diagnostic: `Team Inbox/Tri-County Tire/2026-05-24 - Ledger to Jimmie - First-Pass Diagnostic.md` - Master plan: `Team Inbox/Tri-County Tire/2026-05-24 - Ledger - Cleanup Map - Master Plan.md` - QBO MCP access: slug `tri-county` (you can pull reports directly via j2-qbo MCP if you want to look)