In 2013 I invested about $35,000 in my C Corp in order to keep it going. Can I withdraw those funds at some future date tax free?
Generally, money contributed to a corporation is considered additional paid-in capital. You can take that capital until your basis in your stock becomes zero, without any taxable effect. If you go over zero, then you have a capital gain. For instance, let's say the basis of your stock is $100, through the years you have had earnings, that have not been distributed in the amount of $20,000, then you put $30,000 into the business, the most you could take out of your Corporation without paying any taxes would be $30,000.
It's a little complicated, but I hope this helps
Craig W. Smalley, E.A.
Admitted To Practice Before The Internal Revenue Service
If it was structured as a loan to the corporation then you can repay the loan. If the transaction was structured as a capital contribution, then you will be taking out a taxable dividend if your company now has earnings and profits (i.e. retained earnings), or a return of capital if the business has no retained earnings. If the 2013 tax return erroneously designated a loan as a capital contribution, you can amend. This is definitely a question to go over with your CPA.
I also suggest you have a frank discussion about electing s-corporation status as soon as possible after any NOL (Net Operating Loss) carryover is used up.
Good luck and I hope this helps!
It depends on what you mean by tax free. Assuming you documented the loan properly and booked it as a liability the company owes you, you have the right to be paid back. When the company writes you the check, the money is capital and is considered by you for tax purposes a repayment of debt. So yes, it is tax free.
However, for the company to do this, it too has to earn money, right? Any repayment comes out of retained earnings and impacts your financial statement. That repayment is taxable income to the company. So your CCorp will have to pay tax on the earnings to net enough to pay you back. It is not directly deductible. But assuming you used the money in the company for tax deductible purposes, you have already benefited from those write offs. So it is a timing issue.
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