Due from shareholder

[ILLMAS]

TP borrowed close to $225K from his C-corp business, I really see it impossible for the TP to pay it back, TP bought two personal properties with that money, what options would you recommend?

1.  Pay it back and pay the corp interest (my first choice)

2.  Reclassify the loan as wages to TP

3.  Report as dividends (first year the business has had a huge profit)

4.  Let the corporation pay income tax on the $225k

 

Or what you recommend to the TP.

 

Thanks

MAS

[rfassett]

Option 1 is viable as long as it was intended to be a loan and loan documents were drawn up.

Option 2 is viable if taking the money was disguised wages.

Option 3 is viable since that is what it probably really is.  No deduction to the corp for this.

Not sure I understand option 4.  The corp would pay tax on the money under option 1 and 3 anyway.

Absent loan docs, I would probably opt for a combination of options 2 and 3 unless the shareholder is already taking a fair wage; or unless the shareholder is not entitled to a wage, I,e, he did not work for the corp.

[kcjenkins]

I agree, option 3, or a combination of 2 and 3.