Pay tax on the money you loan from your company?

If my corporation has $20,000 net income, can I borrrow $10,000 for two years? Should I pay tax on $10,000? Any guideline for the personal loan from corporation?

Thank you.

TAXQA

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tax_qa
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If it's an S-corp you'll have to declare the $20,00 profit on a K-1 to yourself to pay taxes on it, so bottowing the $10,000 is not a tax issue. Why not just pay it to yourself because it's your profit and you paid taxes on it already. If it's a C-corp, the corporation will pay taxes on the $20,000 and Yes, you can loan it to yourself. You should pay interest, but no taxes unless it could be considered a dividend--ask your CPA.. If it's a dividend you'll notice you paid taxes on it twice, which is one of the drawbacks of a C-corp and probably why you actually have a S-corp. ed

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ed

wrote

The corporation (or you, if it's an "S" corp) will pay tax on the $20,000 income. The "loan" amount isn't income to you, nor is it a deduction to the company.

The company may have to charge you interest on the loan amount, at market rates. The company would have interest income if they did. You would have interest expense that, more than likely, would be personal in nature (no deduction). If not documented properly, your "loan" might get classified as payroll (subject to payroll taxes and income taxes) or dividends (subject to tax) if the IRS were to audit you. What type of company do you have, and why aren't you taking this as salary?

-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net

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Paul Thomas, CPA

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