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Loans To and From a Corporation?

You are permitted to take loans from your corporation. However, if the outstanding balance exceeds $10,000 at ANY time during the year, you are required to pay your corporation interest on the loan, at the applicable Federal rate.

If the interest is not paid by year end, the IRS has taken the position that it is deemed to have been paid by the corporation declaring you a dividend in the required amount, and you returned the money to them as interest. For a regular corporation, that would mean you would have income from dividends, but possibly not an offsetting deduction for interest, depending on what you used the loan proceeds for. The corporation would have no deduction for the dividend given to you, but would have to recognize the interest income "paid" with those dividends. As you can see, the concept means you may both have to pay tax on income that neither of you really received! This is the reason why the interest should be kept current on shareholder loans, where it is required.


 

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Disclaimer
We do not offer legal advice. All information provided on this website is for informational purposes only and is not a substitute for proper legal advice. If you have legal questions, we recommend that you seek the advice of legal professionals.

Tax Disclaimer: To ensure compliance with IRS Rules, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.

Copyright 2017 Wink Tax Services / Wink Inc.
Last modified: January 30, 2017