How Does One Transfer Assets Into A Corporation (S-Corp or C-Corp)

How Does One Transfer Assets Into A Corporation (S-Corp or C-Corp)

One would create a promissory note between one's self personally and the corporation. Then create a payment schedule and an interest rate that is found in the real world (5-10%) and make monthly payments of interest and maybe principal according to the terms of the promissory note. Include a provision for late payments. Sign the note as both a corporate officer and one's self as lender.

Create corporate minutes that authorize one's self as the officer to take out the loan and state the business purpose in doing so. Make those payments on time, and deposit those payments in one's personal account. Claim the interest as a deduction on the corporate return, and claim the interest as income on a personal return.

In the unlikely event that the IRS reclassifies the first loan into equity, even after doing all this, then whatever payments were made will need to be reclassified. Tell the auditor that the payments will be reclassified to one's person as the corporation draws upon its line of credit, rather than dividends and return of principal from the corporation. Figure out the dates of the payment, put them in the payment schedule, apply the interest rate and the late payment penalties, and make a payment that day that brings one in compliance with the loan. That’s how to avoid penalties, no matter what the IRS decides.

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