When you ask "legal way" you should talk to YOUR lawyer.
You should also talk to YOUR accountant, to find out the correct way to "forgive or write off" that loan.
It is always better to talk to the professional BEFORE you act.
Even thought the professionals will charge you NOW
they are in the business of helping you and could save you BIG LATER
Good luck, LUCKIEST
Thanks for the advice..and I was certainly going to do that...I was just looking for some ideas if anybody else did it. I do the bookkeeping but not the sharpest when it comes to actual accounting.
Some CPAs are certainly better than others and may have more knowledge and ideas. I am just trying to gather some good ideas worth discussing with him.
Message was edited by: mggpatt
Yes, you can do it just as you mentioned it. Just make absolutely sure your company issues you the 1099 and that you do indeed include it in income and pay your taxes on it.
Also, as with all things, since you have given me just a small glimpse of your total picture, speak to your own tax accountant or attorney.
I thought it could be done that way, saving my company payroll taxes but my taxes would be higher, and that is OK I think.
Yes. But "forgiving" the loan would not be the right terminology. The way you're describing this company is that you are the majority owner. Or are at least have intimate knowledge of how the finances work.
Basically, a loan is not a loan once the terms are not met. Forgiving the loan in accounting terms would mean that you would just write it off to your bad debt allowance. This will essentially forgive the loan.
However what this means to you is that you'd have to essentially pay the taxes for that distribution as in the IRS's eyes, that is a owner's distribution and you would now owe it. I recommend lawyering up here and figuring out if you will owe penalties on past years. Or if you can treat it like an accounting change.
If you can get some justification and pay the taxes this year, then you should be good. Good Luck. I hope you read this if you haven't filed.
P.S. You can find out more about me on Facebook.com/TopAccountingServices
My accountant found a way to pay off this loan.
My company is a C corp and I am a 100% stockholder. This may not work for other forms of company formation.
We are going to issue a stock dividend and use that dividend to pay off the loan.
we will do it over a couple of years to minimize the capital gains.
Thank you for the update on this interesting situation. I'm glad you and your accountant were able to find a way to resolve it legally. Please don't hesitate to start a new topic if you'd like to revisit this or discuss anything else.
I have kept strict records of money the company (a small C Corp) has used to pay my personal bills over the years, about $40K. I see it as a loan to me from the company.
Is there a legal way for the company to "forgive" or write off that loan? I understand I would probably get a 1099 as a result showing income and pay personal taxes on that but can I do it?