C corporation owners have a double-taxation problem.
Suppose your C corporation has $10,000 of profits after paying your salary and other expenses. To move that money to your pocket for your personal use, you have to
pay the corporate tax on the income, and
pay a dividend tax on the transfer from the corporation to your personal bank account.
That’s double taxation, and it’s not a great solution. But there is a good alternative: by taking a loan, you can avoid the tax on dividends.
If you borrow the $10,000 instead of taking a distribution, you can repay the money at a tax cost of about $9.81 a year. Compare that to ... Log in to view full article.