We’re always told that debt is a bad thing.
That’s generally true except when debt is a good thing. Like when you’re about to buy a business and operate it as a C corporation.
That’s right. The IRS treats corporate debt more favorably than corporate equity. So it may be a tax-smart move to include some debt (owed to outside lenders) and/or some owner-debt (owed to yourself).
Want more information? You’ll be indebted to the Tax Reduction Letter when you read my new article titled Tax Tips: Buying a Business: Tax Benefits from Including Debt in Your Corporation’s Capital Structure.
Three ways our fact-filled article can help you:
- You’ll learn the advantages of third-party debt. The main advantage of third-party debt financing is that your C corporation doesn’t have to commit as much of your own money to make the acquisition. We’ll tell you how to play the game the right way when you read the full article.
- We’ll explain the advantages of owner-debt. Including owner-debt in the capital structure creates a way for you to withdraw the debt portion of your investment in a tax-free manner. This works because the loan principal repayments are recovered tax-free by you. You’ll get all the details when you read the full article.
- We’ll tell you why Section 385 rules are so important. These rules give the IRS the authority to determine whether an interest in a corporation should be treated as stock or equity for tax purposes. There are five factors that Uncle Sam uses to decide whether a security is debt or equity. We’ll tell you what they are and show you how to stay out of trouble when you read the full article.