Level 12

Loans remaining after sale of corporate assets

Forum|Forum|2 years ago
August 3, 2023
1 reply
20 views

C Corporation is thinking about selling the assets of the business and then closing. Of course it would be better to sell the stock to avoid double taxation. The shareholder seems to think that two small loans (that the corporation OWES) that will not be repaid prior to selling assets and closing, can somehow be "deducted" by the corporation before the tax of corporation is computed. This does not make sense to me. If the loans are not paid then would not these amounts be in fact INCOME (debt forgiven) of the corporation? One loan is for about $16,000 to a related small C Corporation (stock owned by the same shareholder). The other small loan is about $11,000 that is owed to same officer/shareholder (as an individual). Thanks.

ProSeries Professional

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IRonMaN

Level 15

Your shareholder has debits and credits a little confused. Obviously he doesn't know that debits are on the window side of the room. You on the other hand have a firm handle on which side of the room the debits and credits are. Kinda hard to convert income into an expense but it was a nice try on his part. You also might want to point out to him that he has tax free money coming to himself if he pays back the loan to himself.

Slava Ukraini!

PATAXAuthor

Level 12

Thanks Iron Man. I explained to him before that when the loans are repaid that they cannot be deducted as an expense by the corporation, and then on the other end they are not income to the recipient, i. e. they are just being repaid their loan. He has been thinking of selling now for years, and I've explained tax situation to him many times in the past, but I think he keeps listening to his "barber" and whoever else.

IRonMaN

Level 15

Have you thought about installing a barber chair in your office? Maybe if you put a few of your clients in that chair when you are talking to them, they might listen to you a little better.

Slava Ukraini!

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