QUESTION
Could I avoid self employment taxes this way?
Asked on May 12th, 2012 on Business Law - Hawaii
More details to this question:
Let''s say I make $10,000 a month from my business. If I have a special relationship with a company and "loan" eachother money, could I have all my pretax profits going into that "loan" and then they pay back their "loan" to so I get my money back but in a way where I can avoid self employment taxes from my business? Thanks please fill me in on this
1 ANSWER
Reviews not shown
1 Award
This doesn't work because you aren't entitled to a deduction for the loan principal you advance to the other friendly company. If you claim that you are paying "interest" to the other company for which you take a deduction, the absence of a bona fide loan will deny you that deduction and cause you to be subjected to taxes, interest and penalties on your underpayment.
Answered on May 12th, 2012 at 4:12 PM