![](\"http:\/\/s3.amazonaws.com\/snd-store\/a\/39734942\/09_16_19_1002311754_sbtb_560x292.jpg\")
<\/p>\n<\/p>\n
Do you want to withdraw cash from your closely held corporation at a low tax cost? The easiest way is to distribute cash as a dividend. However, a dividend distribution isn\u2019t tax-efficient, since it\u2019s taxable to you to the extent of your corporation\u2019s \u201cearnings and profits.\u201d But it\u2019s not deductible by the corporation.<\/p>\n
Different approaches<\/strong><\/p>\n Fortunately, there are several alternative methods that may allow you to withdraw cash from a corporation while avoiding dividend treatment. Here are five ideas:<\/p>\n 1. Capital repayments.<\/strong>\u00a0To the extent that you\u2019ve capitalized the corporation with debt, including amounts that you\u2019ve advanced to the business, the corporation can repay the debt without the repayment being treated as a dividend. Additionally, interest paid on the debt can be deducted by the corporation. This assumes that the debt has been properly documented with terms that characterize debt and that the corporation doesn\u2019t have an excessively high debt-to-equity ratio. If not, the \u201cdebt\u201d repayment may be taxed as a dividend. If you make cash contributions to the corporation in the future, consider structuring them as debt to facilitate later withdrawals on a tax-advantaged basis.<\/p>\n 2. Salary.\u00a0<\/strong>Reasonable compensation that you, or family members, receive for services rendered to the corporation is deductible by the business. However, it\u2019s also taxable to the recipient. The same rule applies to any compensation (in the form of rent) that you receive from the corporation for the use of property. In either case, the amount of compensation must be reasonable in relation to the services rendered or the value of the property provided. If it\u2019s excessive, the excess will be nondeductible and treated as a corporate distribution.<\/p>\n 3. Loans.\u00a0<\/strong>You may withdraw cash from the corporation tax-free by borrowing money from it. However, to avoid having the loan characterized as a corporate distribution, it should be properly documented in a loan agreement or a note and be made on terms that are comparable to those on which an unrelated third party would lend money to you. This should include a provision for interest and principal. All interest and principal payments should be made when required under the loan terms. Also, consider the effect of the corporation\u2019s receipt of interest income.<\/p>\n 4. Fringe benefits.<\/strong>\u00a0Consider obtaining the equivalent of a cash withdrawal in fringe benefits that are deductible by the corporation and not taxable to you. Examples are life insurance, certain medical benefits, disability insurance and dependent care. Most of these benefits are tax-free only if provided on a nondiscriminatory basis to other employees of the corporation. You can also establish a salary reduction plan that allows you (and other employees) to take a portion of your compensation as nontaxable benefits, rather than as taxable compensation.<\/p>\n 5. Property sales<\/strong>. You can withdraw cash from the corporation by selling property to it. However, certain sales should be avoided. For example, you shouldn\u2019t sell property to a more than 50% owned corporation at a loss, since the loss will be disallowed. And you shouldn\u2019t sell depreciable property to a more than 50% owned corporation at a gain, since the gain will be treated as ordinary income, rather than capital gain. A sale should be on terms that are comparable to those on which an unrelated third party would purchase the property. You may need to obtain an independent appraisal to establish the property\u2019s value.<\/p>\n Minimize taxes<\/strong><\/p>\n If you\u2019re interested in discussing any of these ideas, contact us. We can help you get the maximum out of your corporation at the minimum tax cost.<\/p>\n \u00a9 2019<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Do you want to withdraw cash from your closely held corporation at a low tax cost? The easiest way is to distribute cash as a dividend. However, a dividend distribution isn\u2019t tax-efficient, since it\u2019s taxable to you to the extent of your corporation\u2019s \u201cearnings and profits.\u201d But it\u2019s not deductible by the corporation. Different approaches […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[4],"tags":[],"_links":{"self":[{"href":"https:\/\/www.managementconceptscpa.com\/blog\/wp-json\/wp\/v2\/posts\/34"}],"collection":[{"href":"https:\/\/www.managementconceptscpa.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.managementconceptscpa.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.managementconceptscpa.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.managementconceptscpa.com\/blog\/wp-json\/wp\/v2\/comments?post=34"}],"version-history":[{"count":1,"href":"https:\/\/www.managementconceptscpa.com\/blog\/wp-json\/wp\/v2\/posts\/34\/revisions"}],"predecessor-version":[{"id":35,"href":"https:\/\/www.managementconceptscpa.com\/blog\/wp-json\/wp\/v2\/posts\/34\/revisions\/35"}],"wp:attachment":[{"href":"https:\/\/www.managementconceptscpa.com\/blog\/wp-json\/wp\/v2\/media?parent=34"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.managementconceptscpa.com\/blog\/wp-json\/wp\/v2\/categories?post=34"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.managementconceptscpa.com\/blog\/wp-json\/wp\/v2\/tags?post=34"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}