Be your own banker: Secure interest-free loans from your company — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Be your own banker: Secure interest-free loans from your company

by on
in Employee Benefits Program,Human Resources

Banks recently lowered their interest rates nationwide. But you might do even better than a low-interest bank loan.

Strategy: Arrange a no-interest loan from your company. This fringe benefit is perfectly legal, but it comes with some drawbacks. First, you’re subject to tax on this benefit. Second, if you’re not careful, your company could be socked with a tax bill for “phantom income” it never received.

Establish in the corporate minutes that the loan is being made for compensatory reasons. Although you’ll still owe tax on the compensation, at least your company will see offsetting deductions.

Here’s the whole story: When a no-interest or a below-market loan is made by a company to a shareholder, the “imputed interest rules” take effect. Under this provision, your company is treated as paying you an amount equal to the interest that wasn’t charged. In turn, you’re treated as using this payment to pay interest on...(register to read more)

To read the rest of this article you must first register with your email address.

Email Address:

Leave a Comment