3 Tax-Free Ways To Withdraw Cash From Your C Corporation
If you have a C Corporation and want to withdraw some cash, normally it will be treated as dividends: The corporation does not get to deduct it as an expense, but you should report it as dividend income on your return! Not so smart and tax-efficient! Instead, consider one of the following.
1. Capital Repayment
If you have loaned money to your business, you can withdraw cash from your corporation to the extent you have loaned without the repayment being treated as dividend. It is important to note that you must have properly documented the debt and your Corp doe not have an excessively high debt-to-equity ratio, so the IRS won't be able to re-characterize it as dividend. Moreover, the interest that the Corporation pays on the debt will be deductible.
You can withdraw cash from your corporation in the form of loan. This withdraw will be tax-free to you, but it must be well documented with a loan agreement, which must include terms for interest and repayment of the principal.
3. Fringe Benefits
Instead of taking cash out, you can consider the Corporate pays for your fringe benefits that are deductible by the corp and not taxable to you. Life insurance, certain medical expenses, retirement plan, and dependent care are examples of fringe benefits that are not taxable to you and your corporation can deduct as a business expense.
Maximize Your Corporate Deduction While Minimizing Your Personal Tax
If you are interested in discussing ideas like this that would increase your Corporation's deductions (lower you corporate tax) and decrease your personal tax, please contact us.