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Do you pay taxes on a stock loan? The company (S Corp) I work for is willing to offer me options to purchase stock but they do it through quarterly distribution at full value of the stock they gave me. Do I pay taxes on each distribution even though I don't keep the income?They gave me 5 years to pay off the loan, using the distribution. But now I am taxed quarterly, heavily, on this distribution value, even though none of that income is mine, as it goes right back into paying off the stock loan. How can I be held responsible for paying tax on income I don't have or own until the loan is paid off?

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Submitted: 7 months ago.Category: Finance
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Answered in 12 minutes by:
11/22/2017
Financial Professional: Lev, Tax Preparer replied 7 months ago
Lev
Lev, Tax Preparer
Category: Finance
Satisfied Customers: 32,984
Experience: Personal Investment, Tax Preparation
Verified

Hi and welcome to our site!

If you are taking a loan - and I assume that is a bona fide loan with clear expectation that you will pay it back - that is NOT taxable income.

However if there is no intention to pay the money back - that will be a compensation for services (even if you call it a "loan") - and as such will be your taxable income.

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Financial Professional: Lev, Tax Preparer replied 7 months ago

So based on your information - it sounds that you

-- took a loan and used proceeds to purchase shares of the corporation - that is not taxable transaction as you have intention to pay teh loan back.

-- receiving periodic compensation for your services - that is taxable transaction - and compensation you are getting is included into your taxable income regardless how you use the money

-- you used these distributions to pay off the loan - correct? So you may not deduct these payments because the original loan was not taxable. Regardless where you took funds to pay off the loan.

-- when the loan will eventually be paid off - you will have shares of S-corporation without any loan obligation. The amount you paid for shares will be your basis.

-- Thus if you sell shares - for that value - you will not have any taxable income, but if you sell shares for more than you paid - the difference will be your taxable gain.

Let me know if my understanding is correct and if you have any additional questions.

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