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Tax Law (Questions About Taxes)/Owner Compenation
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Question
It is a two part question.
First, if the CEO/full time employee borrows money from the Corp for himself (say one day he asks for a payables check be cut to him for $100,000) and it is currently booked as a Receivable from him, can a portion of it be moved to "bonus" expense and a 1099 be issued for that since it did not go through payroll. This is in an effort to reduce taxable net income to the corp.
The second question is, if the CEO/full time employee lends the corp money from himself, does this need to be setup as an interest bearing Notes Payable to the CEO or can it remain as just a note payable with no interest?
How do you account for both of these scenarios accurately?
Tana,
Thanks for your question.
Since he is an employee, the unpaid loan would have to be reported on a W-2 as compensation. It must carry interest at market rates whether the corp loans him money or the other way around.
In both cases they need to be booked as a loan either to or from the corporation with appropriate loan documents and interest rates. Terms of the loan must be adhered to.
Hope this helps.
John Stancil, CPA
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John Stancil, CPA
Expertise
I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I teach tax and accounting at a small church-related college. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a part time tax practice for over 35 years. I am a member of the AICPA, National Association of Tax Professionals, and the Institute of Management Accountants. Visit my website at www.johnstancilcpa.com. Also visit my blog, www.thetaxdocspot.com. Prepare and file your own taxes at www.1040stancilcpa.com
Experience
I hold a doctorate in Accounting, and four professional certifications: CPA, CMA, CGMA, and CFM. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 30 years and have taught accounting and tax at the college level for over 30 years.
Organizations
AICPA, FICPA, IMA, NATP
Publications
The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly.
Education/Credentials
DBA University of Memphis
MBA University of Georgia
BS in Accounting Mars Hill College
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