One of the reasons for owning a business is to spend the money you make from it on yourself. Thus, taking money out of your business at the least possible tax cost is one of the most important aspects of business ownership. It is also the area in which businesspeople and the IRS are most likely to end up in court. The stakes are high when the IRS challenges the way you take money from your business. Sometimes the IRS ends up with most of the money, and sometimes it ends up with more money than you made.
Getting money out of the business poses problems for people who own corporations. If you have a sole proprietorship or an interest in a partnership or an S corporation, it seldom matters much how you withdraw money from your business: These kinds of businesses do not pay taxes; rather, for tax purposes all of their profits flow through to you and are declared on your own tax return. When you run your business through a corporation, however, the corporation itself pays tax on its income, and you pay tax on money that you withdraw from the company. When