Hi. My name is ***** ***** I will be happy to help you.
Repayment of the loan's principle (the original amount borrowed) doesn't create any taxable event. However the interest
will become taxable income
to the corporation. Assuming interest of 3%, the repayment of 80K will generate income of $2400 which is a drop in the bucked for a 2M business.
Here's what IRS
says about corporate loans to shareholders
"A loan by a corporation to a corporate officer should include the characteristics of a loan made at arm's length. That is, there should be a contract with a stated interest rate
, a specified length of time for repayment, and a consequence for failure to repay the loan. Collateral would also be an indication of a loan. A below-market loan is a loan which provides for no interest or interest at a rate below the federal
rate that applies. If a corporation issues you, as a shareholder or an employee, a below-market loan, the lender's payment to the borrower is treated as a gift, dividend
, contribution to capital, payment of wages, or other payment, depending on the substance of the transaction
If those draws were rely loans with proper paperwork to back it up, you can repay the entire loan without any tax consequences. There are no limits on repayment of the loan.
Let me know if you have any question.