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September 12, 2025 15 mins

Interested in Tax Strategy for your Business? Send us a message with your email address and we’ll help you get started!

If you're moving money between your S Corporation and LLC, you need to know these intercompany transfer tax strategies. In this podcast, I explain the right way to transfer funds from your S Corporation to fund real estate investments, new businesses, or other ventures without triggering unnecessary tax consequences. 

Most CPAs give terrible tax advice about intercompany transfers, telling business owners to transfer money directly from S Corporation to LLC without proper documentation. This creates massive tax problems including mismatched distributions, lost equity basis, and inability to deduct losses. I break down exactly how to structure intercompany transfers, shareholder distributions, and capital contributions to maximize tax deductions and avoid IRS issues.

What You'll Learn: How to properly take S Corporation distributions and use them to fund other businesses. Why you should NEVER buy real estate directly with S Corporation money or put property under your S Corporation. The critical difference between shareholder distributions and intercompany loans for tax purposes. How to establish equity basis in your new LLC to make losses tax deductible against your main business income. Why proper documentation of intercompany transfers as shareholder distributions is essential for tax strategy. When intercompany loans make sense versus capital contributions for funding new ventures.

We cover S Corporation distribution tax strategies, LLC formation and funding, establishing basis for loss deductions, and the tax consequences of intercompany loans versus equity contributions. Plus, why most small business owners under $10 million profit should be S Corporations, and how to structure multiple entities for maximum tax savings.

Stop making expensive intercompany transfer mistakes. Learn the right way to move money between your businesses while maximizing tax deductions and avoiding IRS problems.

I've put together this FREE resource for you:

7 Write-Offs Every S-Corporation Business Owner MUST Know
🆓 Download FREE PDF here: https://7taxwriteoffs.com/?el=podcast&htrafficsource=buzzsprout

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☎️ Schedule your FREE Tax Advisory Session: https://taxplanningcall.com/?el=podcast&htrafficsource=buzzsprout

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*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this ...

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Episode Transcript

Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
We found about 1.2 million dollars in tax
deductions by properly doingintercompany transfers, so it
was a huge tax planningopportunity.
Does your accountant tell youabout this?
Absolutely not.
A lot of times when a businessowner comes to work with an
accountant, they do it after thefact, meaning say the return is
already done, the year isalready over, the transfer is
already done, none of it isaccounted for correctly, which

(00:22):
causes business owners tooverpay a lot of money in tax.
If you have multiple entitiesand you're transferring money
between entities, you need a taxstrategy, and if you don't have
a tax strategy, I can guaranteeyou that you're overpaying in
taxes by simple fact that you'renot doing intercompany
transfers between both of yourcompanies correctly.
Hey, so I want to talk to youabout intercompany transfers,

(00:47):
all right.
So it's really, reallyimportant.
When you have multiplebusinesses and you're
transferring money excuse me,between businesses, it's really
important to know how to makethose transfers properly,
because incorrectly transferringmoney from one entity to
another entity could have,number one, long-term tax
consequences and number two, ifyou have expenses in this new

(01:09):
entity, it could limit you howmuch of those expenses you can
actually deduct on your taxes ifyou don't properly make the
intercompany transfers okay.
So I'm going to break down thisinto really three sections.
We're going to talk aboutdistributions.
First of all.
We need to understand what is adistribution from a company so
that you can understand how toproperly transfer money from one

(01:30):
company to another.
Because a lot of times,business owners make a mistake
and they think you know what?
I'm just going to loan moneyfrom my one company to another
with an intention of neverpaying it back.
Well, if you don't have anintention to pay it back, you
could have tax consequences andyour accountant won't even tell
you this because they probablyunderstand less than you when it
comes to intercompany transfer.
So I'm going to break that down.

(01:51):
So, like I said, I'm going tofirst explain distributions.
What does distributions mean?
Second thing I'm going to talkto you about is forming and
funding another entity.
So you've got your mainbusiness and now you're opening
up second or third or fourthbusiness.
Right?
Because with business owners,the story is always the same.
Right?
There's always this mainbusiness that feeds your other

(02:13):
businesses.
Right?
There's always this mainbusiness that transfers money to
buy real estate, whatever thatmay be.
So we're going to talk about theproper way of funding it after
we've learned what is adistribution and, honestly, it's
really really important for anybusiness owner to know listen,
regardless of the fact whetheryou have an accountant or not,
or you don't have an accountantor really a tax advisor, but if

(02:34):
you don't have a tax advisor,get yourself a tax advisor.
But for you, the business owner, it's really, really for you to
understand it, because you'rethe one who's making decisions
at the end of the day, in yourbusiness and you're the one
who's transferring money okay,and your accountant may not be
immediately available when youneed to make those transfers.
The third thing we're going totalk about is intercompany loans
on those transfers.
Should you transfer money as aloan or not, and in what

(02:57):
situations should you do that?
All right, now, without furtherado, let's get going.

Speaker 2 (03:13):
Welcome to the Tax Reduction Podcast for
Money-Making Entrepreneurs withBoris Mushaev.
All right Now, without furtherado, let's get going.
Taxes is by using proactive taxstrategies, and this podcast is
all about saving you money ontaxes.
Boris will share with youin-depth and easy to understand
tax reduction strategies thatyou can implement in your
business within 30 days or less.

(03:33):
Let's jump into today's episode.

Speaker 1 (03:36):
So, like I said, I'm going to break down this into
three sections.
The first section I want totalk to you about distributions.
Okay, so, majority of businessowners, they are set up as an S
corporation, whatever businessthat you're in.
If you're a small businessowner making a few million
dollars in net profit right, oreven a few hundred thousand
dollars, but whatever it is, youshould be an S-corporation.
Generally, we start talkingabout other entities with

(04:00):
clients when they make more than10 million dollars in net
profit in their business.
I'm like, all right, let'sstart exploring other companies,
other entities such as Ccorporation.
But majority of people are an Scorporation and it's very
important for you to understandthat when you have an S
corporation, you can take outdistributions from an S
corporation.
So you've got a W2 salary fromyour business.

(04:21):
Anything that is left over, youtake it out as a distribution
because you do not pay taxes onthat distribution.
Taking this distribution is nowyour money.
You can now use this money tofund your other businesses.
This could be your existingbusiness, this could be a
business that you just formed,or this could be a real estate
adventure.
What is it Venture?

(04:41):
I said adventure.
This could be a real estateventure that you want to invest
in.
But the best way to do it,generally speaking, is first to
take the distributions out ofthe business and then fund it
into your other company.
Because when you takedistributions from your main
business and now you fundanother company, your new
company, that would be capitalcontribution and you want to

(05:04):
have capital contributionbecause that gives you an equity
in this business.
But before we get into thissection of explanation and
teaching you how to do this, youjust need to understand that
your business S-Corporation.
You can absolutely take outdistributions to your personal
name.
What you do not want to do isthat if you're looking to buy a

(05:26):
real estate, for example, foryour S corporation, if you want
it for your business or just aninvestment property, what you do
not want to do is buy it with Scorporation money.
What you do not want to do isput it under the S corporation.
So let's say, very commonscenario that I see with my
clients is that they find realestate and they want to buy real
estate, and this real estatethey put it into an LLC.

(05:50):
Okay, so you've got your Scorporation and you've got this
LLC.
Now this LLC needs to buy realestate.
Where is this LLC going to takemoney from your S corporation,
right?
So what a lot of businessowners do without getting an
advice from their accountant,and when they ask their
accountant, the accountantdoesn't give them the right
advice on how to transfer moneyproperly to buy that real estate

(06:11):
.
So what they do is theytransfer the money directly from
an S corporation to an LLC.
Now is it really a problem?
It's not a problem unless it isrecorded properly, unless,
excuse me, it is recordedimproperly on the original
transfer.
So that transfer now has to berecorded as a shareholder
distribution and this moneythat's put into this LLC has to

(06:33):
be recorded as a membercontribution.
Unfortunately, a lot ofaccountants don't treat it that
way.
What they do is that they firstfile the return for this.
Then they realize oh, my client, you have a tax return for a
property and now there's amismatch.
Okay, there is a mismatch.
So you as a business ownershould know that when you want
to invest into another business,into another LLC or into

(06:56):
another property, do not justtransfer money or make the
purchase with an S-corporationmoney.
Have a proper paper trail.
You take a distribution out andthen you make a contribution
into this LLC, whether it's anew business or it's a real
estate property.
Okay, now, now that we haveunderstood what distribution is,

(07:17):
let's move on to understandforming and funding another
company, which I've already kindof touched upon.
Okay, now, if you're forming anew company whether, again, it's
a trade or business or it's anLLC for a property, what we
generally recommend for all ofour clients is to form an LLC.
I love LLCs because they're soflexible.

(07:38):
You can choose how you want tobe taxed.
You can either bring inpartners, investors, or be taxed
as a C corporation for someadvanced tax planning purposes,
or be an S corporation, whateverit is that your tax advisor
tells you.
And if you don't have a taxadvisor, I can guarantee you
right now your accountant isprobably not telling you how to
properly do intercompanytransfers.

(07:59):
We have a client that has amedical practice.
They've got three or four realestate entities, a couple of
other businesses.
They've got a total of like 15other entities.
Okay, and this main businessfeeds all of these entities.
Before they came to us, therewere so many intercompany
transfers without proper loandocuments okay, without proper

(08:19):
loan agreements and they did noteven need to do that, but their
accountant never told them theproper way to do things.
Okay.
So what we did is that we haveundone all those transfers on
paper, so to speak, and we'veproperly recorded distribution
and the contribution into theseentities.
Now, why is this important?
So let's just take an example.
You've got an S corporationthat's making a million dollars

(08:42):
in profit, got a very profitablebusiness, it has cash okay.
Now you're forming anotherbusiness or you're buying
another business and thisbusiness is going to have
expenses.
Okay.
First year, let's say you havea loss.
If you took out a loan from onebusiness to this other business
and you have expenses over here, those expenses are not tax

(09:06):
deductible to you because youhave no equity, whether it's a
startup expenses.
Or you bought a lot ofequipment and you went into
operation before the end of theyear and you have all these
expenses and losses that youthink you can claim but you
actually cannot because thetransfer between the companies
was not done right.
So the best way to treat thisand again, speak to your tax

(09:27):
advisor I'm giving you verygeneral advice.
It's not even an advice, it'smore like an educational content
.
But, generally speaking, whatyou do want to do is take a
distribution from your maincompany to you personally.
You take that money and thenyou contribute into your new
company.
Because when you contributeinto your new company you now

(09:47):
have equity and when you haveexpenses only so you have a loss
at the end of the year youwould be able to deduct those
losses against your firstbusiness as your main business
net profit on your personaltaxes.
Why?
Because you have equity.
When you don't have equity in abusiness, in most cases you
will not be able to deduct thelosses from that company.
They would be recorded assuspended losses.

(10:10):
So that's why when you aretaking money out from one
business, you want this onebusiness to feed another
business.
It's really important that youfirst take out distribution and
then you make a contribution.
No intercompany transfers.
No buying assets with company'smoney for another business.
No buying real estate withcompany's money for this other

(10:33):
LLC that you're forming, becauseagain it could have long-term
tax consequences that you wouldnot be aware of.
By the way, this is notsomething immediately you would
be aware of.
When your accountant is filingyour taxes already the next year
and they give you a tax bill,you'd be like wait, I don't
understand.
I have expenses in my newinvestment.
I have losses in my newinvestment, only to find out

(10:55):
that the money was nottransferred properly, there's no
contributions properly made,only to find out that these
losses are not tax deductibleuntil you actually have equity.
So that's why definitely speakto your tax advisor about the
strategy of transferring money,especially if you have multiple
entities Like I.
Can't even stress enough howimportant it is for business

(11:18):
owners to follow this rule.
All right, the third sectionthat I want to talk to you about
intercompany loans.

Speaker 2 (11:24):
If you have a tax preparer and you do not have a
tax advisor, the only way youcan save money on taxes is by
using proactive tax planningstrategies that only a tax
advisor can give you.
Bora's put together a free PDFfor you, the business owner
Seven tax write-offs every SCorporation business owner must
know.
In this PDF you can find seventax strategies that you can

(11:48):
start using in your business toinstantly start saving money on
taxes.
Click on the link in thedescription below for a free
download.

Speaker 1 (11:55):
So people ask me Boris, what if I loan money from
one company to another?
It is absolutely allowed to do,it's legal to do, it's not a
problem.
But you've got to have a taxstrategy, you've got to do it
right.
In most cases, business ownerssay you know what?
I want to loan money to myselffrom one business to another
business.
And first of all, they don'talways have an intention to pay

(12:16):
back, they just want to transfermoney and thinking, hey, loan
is just the proper term to use,but really it could have tax
consequences.
So the question I askedbusiness owners in our tax
advisory firm I say, well, areyou going to pay the money back?
Like no, I don't think I'mgoing to pay the money back.
Okay, I'm like, okay, cool.
So if you're not going to paythe money back, take a
distribution and contribute andthat's going to give you equity

(12:37):
in a business.
And that's going to give youequity in the business.
Any losses that you have couldbe tax deductible.
Now if they say, actually I dohave an intention of paying in
GetBag, then I don't immediatelyjump on the fact that they
still have to do a loan.
I say, well, let's take a lookat this new entity.
What is the purpose of this newentity?
I want to start a new business,right?
I'm like okay, are you going togenerate profits or losses in
your first year?
Like, what are your projections?
Yeah, my first two years I'mgoing to be at a loss, right?

(13:00):
So I actually have a clientright now who has a main
restaurant business and openingup three more locations.
Okay, opening up three morelocations and a lot of money
from the main business is beingused for renovations of those
locations.
Now, why is this important?
Leasehold improvements are 100%tax deductible, okay.
So again, what happens if theydon't contribute their own money

(13:22):
into these LLCs?
They're going to have a lot oflosses in these three locations
in the first year, but they willnot be able to take those
losses if they don't have equityin that business.
Okay, so what did I do?
Instead?
I said you know what?
From now on, we're just goingto take distributions from your
main company.
We don't need to give them aloan to the other company
because there was no intentionto pay it back.
Right?
Even if there was an intentionto pay it back, I would tell

(13:45):
them how important is it for youto get paid back for that money
.
Everything is your business's.
We want to maximize taxdeductions, so what we want to
do is actually contribute themoney into these three locations
.
Now you've got all theserenovations, leasehold
improvements and everything elsethat's going on can now be
deductible once the businessgoes into operation that first
year and in their case it wouldbe so it was a huge tax planning

(14:08):
opportunity.
Okay, we found about $1.2million in tax deductions by
properly doing intercompanytransfers.
Now, does your accountant tellyou about this?
Absolutely not okay, because alot of times when a business
owner comes to work with anaccountant, they do it after the
fact, right, meaning say thereturn is already done, the year
is already over, the transferis already done, the tax return

(14:30):
for the main business is alreadyfiled.
Now we got all of thesebusinesses and now there is all
these transfers and none of itis accounted for correctly,
which causes business owners tooverpay a lot of money in taxes.
So if you don't have a taxadvisor, get yourself a tax
advisor.
If you have multiple entitiesand you're transferring money
between entities, you need a taxstrategy, and if you don't have

(14:54):
a tax strategy, I can guaranteeyou almost 100% that you're
overpaying in taxes by simplefact that you're not doing
intercompany transfers betweenboth of your companies correctly
.

Speaker 2 (15:06):
That's it for today's episode.
Be sure to check out thedescription below for some free
tax reduction resources thatBoris put together for you.
If you're ready to work with atax advisor on your tax planning
, be sure to schedule your callby heading over to
wwwtaxplanningcallcom.
That's wwwtaxplanningcallcom.
And be sure to subscribe to ourpodcast to be notified when the

(15:28):
next strategy is released.
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