6 Ways to Take Money Out of Corporation

Written by Briana Cavanaugh

June 8, 2009

One of the bigest confusions I see in corporate bookkeeping is how you can take money out of the corporation. So I’ve complied a very basic list for us to refer to.

(1) Repayment of a loan to the corporation. This is not taxable to the stockholder. The stockholder should have reported interest earned and the corporation should have taken an interest expense deduction.

(2) As dividends paid by the corporation. Dividends are profits split among the shareholders proportional to the number of shares each stockholder owns. For example, a company has $100 to pay in dividends, if one stockholder owns 40% of the stock, he should receive 40% of the dividends or $40. See dividends for more information on them.

(3) By selling some of his stock back to the corporation. This becomes Treasury Stock to the corporation (as opposed to Common Stock) and is not taxable to the sharehold if he receives the same amount per share as the amount per share for which he originally bought the stock.

(4) As salary. The salary amounts are not dependent upon the number of shares owned. For example, if two shareholders each owns 50% of the outstanding stock, it is not necessary that each get identical salaries. Bonus payments would also fall under this category. This is taxable as payroll and the corporation must pay liabilities on the amounts paid.

(5) Theft or embezzlement. This is taxable to the shareholder as he is caught.

(6) As a loan from the corporation. In this case there should have been loan documents drawn up and signed by both the stockholder and a corporate officer. The corporation will record periodic interest earned and the stockholder may be able to take interest paid as a tax deduction.

There’s abunch of other things that people think they can take out of a corporation, but they can’t. Partner “draws” are one of those things.

Reimbursements are not wages or money taken out, they are corporate expenses being paid in advance by an individual. So the reibrusement is not taxable and does not fall into this category.

Please note: this is a beginning only. This does not create a reliance of any kind.


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