There are five main ways that you can get money out of your C Corporation:
- Draw a salary. This will be taxable to you and a deduction for the Corporation.
- Declare and pay dividends. This will be taxable to you and NOT a deduction for the Corporation.
- Take a loan. Be careful with this one. The IRS likes to re-characterize loans to shareholders as disguised constructive dividends. That would mean double taxation.
- Invest with your corporation. Be careful with this one as well. This could means that you’ve just saddle your corporation with an appreciating asset
- Loan money to another entity. This can be a great strategy.
One of the places that people get into trouble is when they jump into a business structure without a good strategy about how they will start it, grow it, fund it and most importantly, exit it. This is especially true with a C Corporation. We’ve had to clean up past C Corporation mistakes more times then I like to think about!
Make sure you know the Tricks and Traps of C Corporations before you start or build your C Corporation.