Can an S Corp make a loan to a shareholder?
Andrew Mclaughlin
Published May 16, 2026
Often times a payment or payments to S corporation shareholders will be booked or accounted for as a loan to shareholder. If the shareholder does not have enough tax basis in their stock, taxable gain will result when the loan is reclassified as a distribution. …
Is the owner of an S Corp considered self employed?
The big benefit of S-corp taxation is that S-corporation shareholders do not have to pay self-employment tax on their share of the business’s profits. The big catch is that before there can be any profits, each owner who also works as an employee must be paid a “reasonable” amount of compensation (e.g., salary).
Can I borrow from my S corporation?
Borrowing from your sole-owner S corporation has no advantages, and, in some circumstances, it could trigger taxable capital gains for you. Even if you execute a formal interest-bearing loan document with a repayment schedule, it may not stand up to IRS scrutiny.
How do I borrow money from my S corp?
Give Yourself A Loan When you’re taking money out of an S Corp other than your salary, you can set up a line of credit between you and your business. Then, you’ll take cash out as a loan against that line of credit.
Do S corps pay taxes on distributions?
When an S Corporation distributes its income to the shareholders, the distributions are tax-free. As mentioned, the primary advantage of an S Corporation is that, generally, its income is taxed only at the shareholder level.
How do you take money out of an S Corp?
The business doesn’t pay taxes; only the owners do. Whether you’ve started a corporation, an LLC, or a series LLC, you can elect to be taxed as an S Corp….If you want to take money out of your S Corp, you have three options:
- Take a distribution.
- Pay yourself a salary.
- Give yourself a loan.
Can my corporation lend me money?
The short answer to your question is no. You can borrow funds from a corporation and you can keep them outstanding for one balance sheet date. If it they aren’t paid back you would have to include them in income taxes. At one time you could borrow cash from a corporation in order to buy a house for your personal use.
What is S Corp loan basis?
The amount of a shareholder’s stock and debt basis in the S corporation is very important. Unlike a C corporation, each year a shareholder’s stock and/or debt basis of an S corporation increases or decreases based upon the S corporation’s operations. The S corporation will issue a shareholder a Schedule K-1.
How does an S Corp pay owners?
Getting paid as the owner of an S Corporation An S Corporation is either an LLC or C Corporation that has elected for special tax treatment with the IRS. An S Corp’s remaining profits are paid out in distributions to the company’s shareholders, who then report those distributions on their personal income tax returns.
Can S Corp owners pay themselves?
The IRS requires S Corp shareholder-employees to pay themselves a reasonable employee salary, which means at least what other businesses pay for similar services. Basically, the IRS can recharacterize your distributions as salary and require payment of back payroll taxes and penalties.
