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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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I own a business which is registered as a C Corp. I have paid

Resolved Question:

I own a business which is registered as a C Corp. I have paid corporate taxes on the profits. I am wondering if it is permissible to gift some of the funds out to family members under the $13,000 annual exclusion. I want to to do this to avoid "double taxation." If I distribute the dividends then I have to pay taxes again. I am the sole stock holder so no one can complain about my decisions if they are legal.
Submitted: 4 years ago.
Category: Tax
Expert:  Tax.appeal.168 replied 4 years ago.
Hello, THANK YOU for choosing Just Answer. My goal is to help make your life...a little...LESS taxing.

Hello again,

Please allow me a few minutes to check into this scenario for you. I will get back with you shortly.

Thank you.
Customer: replied 4 years ago.
Okay, I will check back in an hour for an update.
Expert:  Tax.appeal.168 replied 4 years ago.
I will more than likely have an answer before then, but an hour is fine.

Thank you.
Expert:  Tax.appeal.168 replied 4 years ago.
Hello again,

General rule:

If there is a relationship between the shareholder and the donee then the gift is a dividend to the shareholder,and then a gift from the shareholder to the donee. If there is an employer/employee relationship between the donee and the corporation then there would NOT a GIFT, but wages, commission, bonus, etc. If the amount is in fact a gift then it is limited to $25 and the rest is a non-deductible expense.
Customer: replied 4 years ago.
but that would mean the shareholder would pay taxes on the dividend right? That is what I'm trying to avoid.
Expert:  Tax.appeal.168 replied 4 years ago.
Yes, you are correct. Legally, I do not think that there is a way to avoid paying the tax, but as we are delving into a territory that my expertise level does not reign in, I will release the question back into the question que so that maybe another expert will be able to assist you. Sorry that I could not help you with this one.
Expert:  Lev replied 4 years ago.
Hi and welcome to Just Answer!
The issue is that you as a physical person and your C-corporation are separate legal and taxing entities.
You are allowed to make gifts within the annual limit without any tax consequences. But the money which belongs to C-corporation are not legally yours. These funds should be distributed to you first - then you may gift that money to anyone you want.

Any distribution from C-corporation would generally be treated as dividends to shareholders - you may not avoid that by gifting.
You may hire your family members to perform services for C-corporation and compensation might be deductible for C-corporation - but will be taxable for your family member.
Sorry if you expected a different answer.
Let me know if any clarification needed.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience: Taxes, Immigration, Labor Relations
Lev and other Tax Specialists are ready to help you