If you’re a business owner and your company lends you money, you’ll enter it in the books as a shareholder loan. However, if your return is audited, the IRS will scrutinize the loan to see whether it is really disguised wages or a dividend, taxable to you as income. Knowing what the IRS might look at may be useful when you structure the arrangement.
First, the IRS will look at your relationship to the company. If you’re the sole shareholder with full control over earnings, that may weaken your case that the loan is genuine. On the other hand, if you’re one of several shareholders and none of the others received similar payments, that suggests it might be a genuine loan.
Next, the IRS will look at the details of the loan. Did you sign a formal promissory note? Did you pledge any security against the loan? Does the loan have a specific maturity date, or is there a repayment schedule? What rate of interest are you paying? Have you missed any payments, and if so, has the company tried to collect them? The more businesslike the terms of the loan, the more it will appear to be a genuine debt.
Finally, the IRS will consider other factors. Is your company paying you a salary that’s in line with the work you perform? Has the company paid dividends, or is this the only payment to its shareholder? Is the size of the loan within your ability to repay? How does the size of the loan compare to the company’s profits?
Whether the IRS will try to tax you on the “loan” will depend on all these factors. If you’ve paid attention to the details, the loan should withstand IRS scrutiny. Contact us at 201-947-8081 or 646-688-2807, or email us at firstname.lastname@example.org, if you’d like more information about borrowing money from your closely held corporation.
For help with IRS, tax audits, tax problems, back taxes, tax settlements, tax debt, Offer in Compromise, tax help, IRS debt, a tax lien, a state tax levy, an IRS levy, an IRS tax lien, contact us. If you need IRS help and have unresolved cases with previous tax lawyers and tax attorneys, we can help find an optimal resolution for your indigenous needs. We are available at 201-947-8081 or 646-688-2807, or email us at email@example.com.