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Is it possible to transfer or loan money from your first business to a second business and not pay tax on the transaction?

Hello, I'm trying to think about structuring a transaction for a second business venture. I want to pull funds or loan funds from a first business and transfer it over to a second business. Can this be achieved without paying taxes on the funds transferred to the newly formed second business?

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

You should speak with your tax and legal advisors, but you can loan money from one entity to another as long as you have a market based interest rate in the loan.

Otherwise you can invest in the other company, where company one would have an equity position.

Topic Expert
Joseph Ori
Title: CEO
Company: Paramount Capital Corporation
(CEO, Paramount Capital Corporation) |

Yes, you can borrow funds from Co. A and use those funds to make an equity investment in Co. B. There is no tax on initial transaction, however, need to make sure you have a promissory note and loan agreement with Co. A and a Corp, LLC or LP agreement for the equity investment in Co. B.

Anonymous
(Accounting Manager) |

Can you make a transfer without loaning the funds?

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

If you prepare one tax return that covers both entities, transferring cash may be an option, but consult with your tax advisor.

Anonymous
(Accounting Manager) |

Thank you. I have what I need. They will be two separate entities. We wanted to make sure we had some research before taking to our tax adviser. We are leaning towards the loan option.

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