Hello, my name isXXXXX & I'll be helping you today. My goal is to give you a complete & accurate answer that you can understand.
I'm afraid I can't do a whole lot better than the previous expert who has given you the correct answer.
When dealing with tax law
, when someone asks "Why" it is often difficult to attempt to explain as seldom does the tax law explain the reasoning behind a rule. That's why tax disputes attempt to look at the Congressional history of particular law, proposed regulations
, and often wind up in Tax Court.
Your situation happens all the time with small S-Corps; as you can imagine, it is quite common; what we try and negotiate with the lender is to make the loan directly to the S-Corp with the personal
guarantee of the shareholder(s) and that seems to work well most of the time.
Even thought you are required to report the interest expense on the S-Corp as interest income personally, you would be entitled to an investment interest expense deduction on your personal income tax returns
so that it isn't quite as bad as it may seem on the surface. Of course, there are situations where that doesn't result in complete mitigation of the income (for example if you are unable to itemize deductions
), but it normally does provide some relief in most cases.
If you would like to discuss further, please let me know.