I own a one-employee C-Corp. I am the only employee. We do consulting, so it is a Personal Service Corporation.
To avoid double taxation, at the end of each tax year I pay out most of the remaining funds as salary. Naturally I pay personal income tax on the salary I receive from the corporation. (The payout is the expected behavior for personal service corporations, and is reflected in the rather high 30% tax rate on retained income.)
In 2020 I received a small,$1000, EIDL payment. This was tax free to the corporation. However, when I paid out the remaining funds of the corporation at the end of the tax year, my accountant says I created a almost $1000 loss for 2020. (I had calculated the profit to be about $60, so the loss would be about $940.)
This year I have applied for a small PPP loan. This is also tax-free and forgivable if I use it all for salary. So, according to my accountant, this will create another, but larger, loss.
This sounds nuts. How can I every get rid of the loss without building capital in the corporation, and then when happens when I retire and close the business. If I pay out the remaining funds as dividends, doesn't this just create another loss?
Can I close the business (in the future) with the loss still on the books?
Vic Roberts