Finance Questions? Ask a Financial Expert for Answers ASAP
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You should state the interest and receive interest from the corporations and that will be what you are taxed on.
You will never be taxed on the principal of the loan.
Having a loan agreement is the best way to protect yourself.
Does this hold true if I own the offshore corporation and I fund the corporation with a personal loan?
Yes, that's true - you are never taxed on the principal amount of the loan. Loan proceeds and repayments of principal are never taxable. You are only taxed on the interest you receive.
What is the minimum interest rate that I should charge to satisfly the IRS or does it even matter as long as there is interest on the note?
let me get you the list of rates. You should charge at least the amount that the IRS publishes.
You can go to THIS SITE each month, and get the list of Applicable Federal Rates.
I just checked the tables and if I charge 6 or 8% interest I should be fine. Do you agree?
Yes, I agree. The AFRs are very low right now.
When making the note ,I will sign my name as the maker of the note. When I put the name of the corporation, will that suffice or do I need to sign also for the corporation? The reason I ask is because a corporation is in itself a legal person or enity. Right?
Right, you will need to sign as the corporation as well.
Meaning I sign twice, once as the note maker and second as the owner of the corporation. Right?
That is correct.
Mrgan, if for some reason the loan to the corporation goes bad and cannot be repaid. Would I be able to write the loan note off? plus interest?
You could write the loan off as a capital loss, but you would not write off the interest. You can only write off what you have given the company which has not been repaid.
OK. If the note is over a year and I had to write it off, would that be considered a long-term capital loss on my personal taxes?
Yes, that would be considered a long term capital loss
Thank you Megan for anering my questions, you have been a big help!
I'm so glad. If you would, please rate positive so that I may receive credit for assisting you today