Discussion:C-Corp Shareholder Debt
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Discussion Forum Index --> Tax Questions --> C-Corp Shareholder Debt
| 10 February 2007 | |
| Hi. I am the controller and 20% shareholder of a C-corp with one other shareholder. I have read ALOT of the discussions on this website and still feel confused. I am hoping that someone can help. I am an employee of this corp also. I have used a personal credit card as well as a company credit card (that I guaranteed) for everyday business expenses over the last year. This company cannot pay back this loan to me and I believe that it will close this year (but not 100% sure). The credit cards are roughly $44k. I am obviously trying to figure out how to pay off this debt. I have read on some of these discussions that since I am an employee, I can deduct these expenses as a business expense on my 1040. Is that correct? If so, can I deduct the entire $44k? Or do I have to wait until the company closes? The company also pays for my car lease, can I still deduct business mileage? The car is in the companies name with me as a co-signer. I am confused because I read in some discussions that shareholders could not deduct the business loss from their personal taxes. Thanks for any help you can give. I know I probably have to contact a tax professional, but I was hoping to do it myself on Turbo Tax.
Jody | |
Death&Taxes (talk|edits) said: | 10 February 2007 |
| The discussions are correct; you cannot deduct corporate expenses on your personal return, nor can you deduct the auto mileage for a car in the company name. While there is an issue that you are a co-signer on the lease, I doubt very much this would suffice. If the loans are not paid and the company is going to fold, you should be researching other discussions to insure if possible that the debt is a business bad-debt, though once again it will be in an employee situation where the loss might be subject to AMT. Also you should be looking to find verification for your basis in the stock, since if the company folds the stock loss will probably qualify for Sec. 1244 status. That loss is deductible on the front page from Form 4797. | |
| 11 February 2007 | |
| Thanks that is the answer I thought I would get, just wanted to verify. Thanks for the help. Jody | |
Death&Taxes (talk|edits) said: | 11 February 2007 |
| I do wish more people would have commented on this thread. | |
| 11 February 2007 | |
| DT, what do you think wasn't covered already? You did a good job. | |
| 11 February 2007 | |
| ok, I will add something. Since she is a shareholder, could she treat these unreimbursed credit card charges as capital contributions and increase the basis in her stock? | |
Death&Taxes (talk|edits) said: | 11 February 2007 |
I was wondering about that myself....but it only is good if the new capital qualifies for Sec. 1244 which I am not sure about. I was thinking of this provision: B) Increases in basis
In computing the amount of the loss on stock for purposes of
this section, any increase in the basis of such stock (through
contributions to the capital of the corporation, or otherwise)
shall be treated as allocable to stock which is not section
1244 stock.
| |
| 11 February 2007 | |
| I don't think the additional qualifies as 1244, so that would go on Sch D, even if the original qualified as 1244. You just wrote it fancier than I did. | |
| February 11, 2007 | |
| Here's the part I hate the most about C corps: repaying the debt requires real money. You can't just apply undistributed profits to it or otherwise massage things so that they go away. If new shares are issued, they would qualify for 1244. Must be new shares. Yes, that would change the ownership, tho'. Again, why I hate C's the most. You just cannot allow personal expenses to be paid from the C, in my opinion.
Good Sunday to you, see you tomorrow. | |
| 11 February 2007 | |
| Thanks for the thoughts, now I have more I can research. I hate C corps too. Made a big mistake by not switching to an S. Oh well, live and learn. By the way, I luv the communication on this website. It is interesting reading all the the various issues and thoughts. Jody | |
Death&Taxes (talk|edits) said: | 11 February 2007 |
| But your spending would not have been deductible anyway unless you first put the money into the S, creating a loss you could deduct, but only 20% of it, not all of it. Your co-shareholder would have reaped the benefit of 80%. You have to create basis to deduct the S Corp Loss. | |
| February 12, 2007 | |
| The problem isn't getting a loss, that won't happen either way since they're personal expenses. The problem is in getting them off the corp books. In an S, at year end, with some excess profit, you can wash out the N/P S/H...In a C, they've got to write a check to put the money back in and pay the note. Or bonus it up on a payroll check. That's about it. | |
Death&Taxes (talk|edits) said: | 12 February 2007 |
| She did say she was paying everyday business expenses, which I took to be the corporation's and not personal, thus the comment that her co-shareholders would benefit from the loss if she first put the money into the S Corp to pay them with. Losing businesses are losing businesses whether S or C, especially when there is more than one shareholder. | |
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