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Megan C
Megan C , Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16539
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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If I give a personal loan to a corporation, should I have an

Resolved Question:

If I give a personal loan to a corporation, should I have an interest rate on the note so when the corporation pays me back with interest the IRS won't tax my principal as income?
I will only pay tax on the interest received as ordinary income right?

Now if I do the same to an offshore corporation that I control through a wire transfer from my personal brokerage account to the corporate brokerage account, should I do the same as the example above if the principal is wired back to my personal brokerage account with the interest owed?

Thank you
Submitted: 2 years ago.
Category: Finance
Expert:  Megan C replied 2 years ago.

Megan C :

Hello and welcome. Thanks for your question. My name is XXXXX XXXXX I would be happy to help you today

Megan C :

How are you doing today?

Megan C :

You should state the interest and receive interest from the corporations and that will be what you are taxed on.

Megan C :

You will never be taxed on the principal of the loan.

Megan C :

Having a loan agreement is the best way to protect yourself.

Customer:

Does this hold true if I own the offshore corporation and I fund the corporation with a personal loan?

Megan C :

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.

Customer:

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?

Megan C :

let me get you the list of rates. You should charge at least the amount that the IRS publishes.

Megan C :

You can go to THIS SITE each month, and get the list of Applicable Federal Rates.

Customer:

I just checked the tables and if I charge 6 or 8% interest I should be fine. Do you agree?

Megan C :

Yes, I agree. The AFRs are very low right now.

Customer:

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?

Megan C :

Right, you will need to sign as the corporation as well.

Customer:

Meaning I sign twice, once as the note maker and second as the owner of the corporation. Right?

Megan C :

That is correct.

Customer:

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?

Megan C :

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.

Customer:

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?

Megan C :

Yes, that would be considered a long term capital loss

Customer:

Thank you Megan for anering my questions, you have been a big help!

Megan C :

I'm so glad. If you would, please rate positive so that I may receive credit for assisting you today

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