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Hi, Matt.

This is not professional opinion, so take with a grain of salt. OTOH, I am also a consultant, and own a C-corp, of which I'm the only employee. (I chose C on purpose, for other reasons, so I don't have direct experience with S-corp distributions.)

Yes, you can loan money back and forth between yourself and your corporation. I've done this--mostly from me to the corporation, when it was new. I didn't bother with loan documents (why sign a page as both creditor and borrower?), but I did mark the checks, and set up a separate account in QuickBooks to track it. And I did pay the loans off. I think this is a sufficient paper trail to make it clear that they were loans.

However, this probably won't help you with your situation. Your corporation would have to report Loan to Owner of $3400 as an asset, and would show a profit. And owe taxes.

Aside from that, you have to be somewhat careful about S-corp distributions. Since the corporation generated income by employing you as a consultant, it has to pay you a "reasonable" salary. What's reasonable? Something similar to what you would have been paid by some other corporation to do a similar amount of work. I don't know how much that is, but you should have an idea. If you don't pay a reasonable salary, the IRS can reclassify the distribution, or part of it, as salary.

If you made a $3400 salary payment in 1998, and didn't withhold Federal and State taxes, and FICA and Medicare, you're late now, and owe penalties. Then there's Federal and State Unemployment, too. Ouch.

When I set up my corporation, I had a CPA take me through all the filings. It wasn't cheap, but I've got a handle on it now. Fortunately, there are tax benefits, too.

Good luck.


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