Signing Bonus into S-corp: Tax ramifications

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newdoc
Posts: 64
Joined: Wed Mar 13, 2013 8:21 pm

Signing Bonus into S-corp: Tax ramifications

Post by newdoc » Tue Jul 02, 2019 8:09 am

Hi, I'm a physician who will be starting a new job and my "income" for the first year is technically a loan to facilitate me starting up my practice. The loan will be forgiven incrementally over the remainder of my contract and I will obviously need to pay taxes on it as it is forgiven. I have started an S-corp styled LLC to run my practice and am opening up a business bank account to handle all the finances. Part of my "income" will be in the form of a sign on bonus. My question is: Is there a difference, in terms of later tax implications, between having the signing bonus amount deposited to my business bank account vs my personal bank account? I'm told that any loan forgiveness amount would be considered income to the S-corp (distribution/dividend), not necessarily personal income and thus there'd be no Medicare/SS tax. So I'm wondering if this would apply to the signing bonus amount even if I accept the money into my business account and transfer it to my personal bank account as personal income. Likewise, I'm wondering if I could consider the forgiven amount a distribution for tax purposes even if the original "signing bonus" (i.e. loan) amount went directly to my personal bank account initially.

bryanm
Posts: 220
Joined: Mon Aug 13, 2018 3:48 pm

Re: Signing Bonus into S-corp: Tax ramifications

Post by bryanm » Tue Jul 02, 2019 10:56 am

The tax forms don't have a field for which bank account it went into. For your purposes, the bank account doesn't matter.

Who is the loan being issued to, you personally or the S-Corp? That same entity would be the one realizing income when the loan is forgiven. Don't switch entities midstream.

As you mention, the only difference here is Medicare/SS tax. However, remember that the gov't needs to see reasonable compensation. As a physician, will your "reasonable compensation" really fall below $133k? I would guess not. And in that case, you're not really avoiding anything at all.

Why did you set up the LLC? If it's for liability shielding purposes, you would be well advised to make sure all payments flow through the LLC. You're not going to get much shielding if a court sees it used improperly.

Topic Author
newdoc
Posts: 64
Joined: Wed Mar 13, 2013 8:21 pm

Re: Signing Bonus into S-corp: Tax ramifications

Post by newdoc » Wed Jul 03, 2019 12:46 pm

bryanm wrote:
Tue Jul 02, 2019 10:56 am
The tax forms don't have a field for which bank account it went into. For your purposes, the bank account doesn't matter.

Who is the loan being issued to, you personally or the S-Corp? That same entity would be the one realizing income when the loan is forgiven. Don't switch entities midstream.

As you mention, the only difference here is Medicare/SS tax. However, remember that the gov't needs to see reasonable compensation. As a physician, will your "reasonable compensation" really fall below $133k? I would guess not. And in that case, you're not really avoiding anything at all.

Why did you set up the LLC? If it's for liability shielding purposes, you would be well advised to make sure all payments flow through the LLC. You're not going to get much shielding if a court sees it used improperly.
Thanks so much for your helpful reply. I have to option of having them send the loan directly to me personally or requesting that it go through my LLC-SCorp.

Yes it is for liability shielding purposes. So your saying that there won't be much difference in terms of taxation and the difference lies in liability? Can I just have the entire amount transferred from my LLC-S-Corp into my personal account and avoid liability should it become an issue? And what about withholding. Since this is basically being used to pay an employee salary (my own), would I need to have my LLC-SCorp witholding payroll tax? ...even if it is technically a loan?

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