Buying the stocks and the bonds from the same corporation

Posted by Brablo on January 19, 2007, 8:10 pm

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Suppose that ABC corporation has issued stocks and bonds. The stock's
symbol is ABC. As a shareholder, you are an owner of the company
(albeit, a very minor one). Now, suppose that you lend your own
company, ABC, some money in the forms of buying ABC bonds. As you
know, when you purchase bonds, the money is borrowed from you - the
investor - and they pay this borrowed funds from you in the form of
interest.

Because I'm investing money into my own company, this is an expense,
which is tax-deductible. I should be able to invest in corporate bonds
on a pre-tax basis. However, the interest should be taxed, because
this is, for sure, earnings. Also, the interest is not taxed to the
corporation, but using my logic, it should be taxed to the investor
(which it is), and the money to invest in the bonds should be done on a
pre-tax basis (which isn't the case now).

Posted by 704set on January 20, 2007, 8:27 am

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> Because I'm investing money into my own company, this is an expense,

> which is tax-deductible.

It is not an expense. You get your money back at maturity.

>and the money to invest in the bonds should be done on a

> pre-tax basis (which isn't the case now).

Why?

704set

Posted by Blash on January 20, 2007, 8:47 am

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704set wrote on 1/20/07 8:27 AM:

>> Because I'm investing money into my own company, this is an expense,

>> which is tax-deductible.

> It is not an expense. You get your money back at maturity.

>> and the money to invest in the bonds should be done on a

>> pre-tax basis (which isn't the case now).

> Why?

> 704set

A LITTLE knowledge is a dangerous thing..........

Posted by Paul Thomas, CPA on January 20, 2007, 8:34 am

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> Suppose that ABC corporation has issued stocks and bonds. The stock's

> symbol is ABC. As a shareholder, you are an owner of the company

> (albeit, a very minor one). Now, suppose that you lend your own

> company, ABC, some money in the forms of buying ABC bonds. As you

> know, when you purchase bonds, the money is borrowed from you - the

> investor - and they pay this borrowed funds from you in the form of

> interest.

> Because I'm investing money into my own company, this is an expense,

> which is tax-deductible.

Sory, it's either a loan or an investment, neither of which are "tax
deductible".

> I should be able to invest in corporate bonds

> on a pre-tax basis.

Nice thought, but the only method for doing so would be through a qualified
plan, like a 401K or IRA. But they can't invest in a company you own.

> However, the interest should be taxed, because

> this is, for sure, earnings.

And it is.

> Also, the interest is not taxed to the

> corporation, but using my logic,

> it should be taxed to the investor

> (which it is), and the money to invest

> in the bonds should be done on a

> pre-tax basis (which isn't the case now).

With the exceptions of qualified plans (IRA's, 401K's, etc) all investments
are done with after tax money.

--
Paul Thomas, CPA
paulthomascpapc@bellsouth.net

Posted by lubow on January 20, 2007, 12:35 pm

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Sorry, but this is a lousy example. Investing money into ANY corporation is
not an expense, particularly a C corporation. The CORP expenses it,
depreciates it or assets it as it sees fit, but NEVER the investor. Even if
the investor is an owner.

For the investor it is only a basis against future gains or loan repayments
and does not get entered in to the individual's tax return. But I'm not an
accountant.

--
Lubow

> Suppose that ABC corporation has issued stocks and bonds. The stock's

> symbol is ABC. As a shareholder, you are an owner of the company

> (albeit, a very minor one). Now, suppose that you lend your own

> company, ABC, some money in the forms of buying ABC bonds. As you

> know, when you purchase bonds, the money is borrowed from you - the

> investor - and they pay this borrowed funds from you in the form of

> interest.

> Because I'm investing money into my own company, this is an expense,

> which is tax-deductible. I should be able to invest in corporate bonds

> on a pre-tax basis. However, the interest should be taxed, because

> this is, for sure, earnings. Also, the interest is not taxed to the

> corporation, but using my logic, it should be taxed to the investor

> (which it is), and the money to invest in the bonds should be done on a

> pre-tax basis (which isn't the case now).