Hi. My husband and I started a business and incorporated it Jan 24, 2001. We are a custom software development company. When we began, we used our own money to buy computers and other office needs, then, when we moved into a commercial office space in October of 2002, we took out loans in our own (personal) names using our own credit to fund the business moving into an office space and all the expenditures associated with this move (like office furniture, etc.). The reason we took out personal loans (and used personal credit cards) was that the business had no credit itself and we were really sure that neither a bank loan nor a credit card in the business’ name would be possible at that stage. Is there any way we can deal with the company paying off these debts? And how can we deal with this odd situation to minimize both business taxes and our personal taxes? And how can we re-seal the corporate veil, so to speak?
Thanks,
Kelly Lautt
Leverage Development
Custom Software
http://www.LvDv.com
Hi Kelly:
In effect, what you did was loan money to the corporation.
You borrowed money in your own name, then turned around and loaned that money to the corporation (by purchasing business equipment with those personally borrowed funds).
So now, just have the corporation pay you back, then you use those corporate funds to pay off your personal debt.
Ideally, the loans between you and the corp should be documented with written notes, using current interest rates. Treat it like a true arms-length transaction and you should maintain the corporate veil.
Sincerely,
Wayne
Wayne M. Davies is author of 3 tax-slashing
eBooks for small business owners and the self-employed. For a
free copy of Wayne’s 25-page report, “How To Instantly Double
Your Deductions” visit http://www.YouSaveOnTaxes.com
