Corporation

[Pacun]

If the ONLY owner of the C corporation "borrowed" money from the company one year and then deposited it next year, what's the interest percentage the company should charge on this money?

What if the owner decides at tax time not to repay this money but to have it as return of capital or dividends? I know that intent is important but this client moved from Sole proprietorship to C corporation and continue acting as a Sole Proprietor. He has stopped doing that after I talked to him but I am trying to correct the mistakes made in 2010 and early 2011.

[ILLMAS]

The corporatin should charge a FMV interest rate, you can look up rates for personal loans online, then just accrue for interest income (on the C-Corp), paid or not you should still account for it on the books. So now, he owes the loan + interest, same if he borrowed from a bank.

What if the owner decides at tax time not to repay this money but to have it as return of capital or dividends?

Does he draw a salary from his business (acts a Sole-Proprietor)? If not, the IRS might make convert the loan, capital or dividends as wages and hit the business with payroll taxes.