I have the following situation and could somebody with relevant experience please advise?
I live in U.S., and have my own c-corporation. I'd like to buy a website for $20,000 but my business does not have enough funding in its checking account. I do not want to get a small business loan using my c-corp identity because it'll go through a lot of formality, documentation, etc.. it's a painful process. I want to keep it simple and well under control.
I have enough personal saving, so I can just buy the website using my personal saving. But for tax reasons, I do not want to personally buy website and have my c-corp to run it because money used to buy the website was personal and can not be used to deduct profit made by the business. in another word, when my business file tax returns, it cannot claim $20,000 as business expense. and when I file my personal tax return, I cannot claim $20,000 as personal loss either. This is a very bad situation and I want to avoid it.
So here comes my theory: how about my c-corp takes a private loan from myself with a reasonable interest rate, say 4% or whatever suitable. Every month, my c-corps pays back the loan to myself until $20,000 + interest are paid off. This way, when my c-corp files tax return, $20,000 is a business expense, and when I file my personal expense $20,000 is there, nothing changed for personal tax return.
is there any other way to handle this? I'd like to keep it simple, legal and less hassle free. if there are better suggestions, please let me know.
If you were operating as a pass-through this would be trivial - you capitalize the business as need and take disbursements as needed and the net it out on a schedule K (that is a bit simplistic but you get the idea). So, it's not really a loan as much as you investing in your business and later taking a draw from it - simple for taxes as you can take the loss/gain on both sides. If you able to elect as an s-corp that might be useful, but I assume there is some reason you haven't.
As a c-corp it's similar but you can't just 'pass-through'. Still, you can put money into a c-corp and then later take it out so the the 'loan' part of this equation seems to have no value. You can usually just have the company sell some stock/position for cash (to yourself, presumably) and then later pay yourself a salary, bonus, dividend, or benefit as you see fit.
There is very little point in paying yourself interest unless you have a more complex tax strategy in place. You might just wind up taking capital gains on it!
thanks for the suggestion sagewing!