Taking Money Out of Your US Company Tax-Efficiently

If you simply pay yourself the money in your company as dividends, you will usually pay high taxes. That is just as true in the US as in most European countries. Fortunately, there are ways to avoid paying dividends and take the money out of the business another way. This article explains the special US rules you should know as a business owner.

For an overview of transferring money between the US and Europe , see here.

1Popular in Europe: taking a loan from your own company

If you are a shareholder in a limited company or similar entity in a European country, you can, under the right conditions, take a loan from that company. The managing director and shareholders have a lot to watch out for, though, to avoid tax traps.

1.1Loans from your own company under a commercial agreement in the US

One big advantage of owning a business is the ability to move money between your personal assets and the company as needed.

Loans from your own company in particular must be carefully structured to avoid trouble with the tax authorities. Before taking that step, talk it through carefully with a financial advisor. We are happy to help you plan it. Just get in touch for an initial consultation.

1.2The dangers of an informal loan

Business owners often borrow money from their companies. You should proceed carefully, though, to avoid trouble with the IRS.

In the US, unfortunately, it is not enough for the money withdrawn to be classified as a loan in the books. The IRS can later recharacterize such a "loan" as a dividend, which means it is automatically taxable too, and usually not even deductible for the company. In such cases the IRS is also quick to take the matter to Tax Court to have its decision upheld.

To prevent this, you need thorough planning and documentation so the money withdrawn is clearly recognizable as a loan.

In a recent US case, a business owner ran a mid-sized company with his wife. He regularly took money out of the company, paid personal expenses from company funds and wrote himself checks. At the end of each year he repaid these loans in full by offsetting them against his year-end bonus.

The IRS, however, argued that this money was not genuine loans and was therefore taxable. The Tax Court agreed. What he would have needed was evidence that he intended to repay the borrowed money.

That brings us to a crucial point when borrowing from your own company: it must be clear to everyone that the money withdrawn is a loan. Not only must the borrower be able to prove they intend to repay it; the company must also draw up a proper loan agreement with interest in line with current market rates. Which leads to the next point:

1.3Loans to owners or shareholders: the interest rate decides

The prevailing interest rates determine how cheap a company loan to its owner is. The benchmark is the minimum rate the IRS publishes every month, the Applicable Federal Rate (AFR). In the low-rate years, rates under 2% were no problem; as of August 2026 the short-term AFR is 4.10% a year, so a shareholder loan must carry interest of at least around that level.

Depending on where rates go, borrowing from your own company can become more or less attractive. But be aware that you cannot treat such a loan lightly or set it up carelessly: the IRS places great weight on your being able to prove that it really is a genuine loan and not a disguised dividend.

If you have questions about setting up a loan through your US company, don't hesitate to contact us. We are experienced experts in forming and running companies in the US, and we're glad to help.

2Paying company profits to the managing director as salary

Another very popular way to take money out of your company without paying high tax on dividends is to pay a salary to the director, which usually means yourself.

Bear in mind, of course, that this salary is subject to ordinary income tax. So here too, think carefully in advance about whether this step, which also involves some effort, is really worth it.

2.1Taking profits as salary in the US

The US is not really any different. Depending on your type of entity, paying yourself a salary makes more or less sense.

If you own an LLC or S-Corp, this is less of an issue. With these entities you normally take the profits out and treat them as income. Whether you withdraw the profits or leave them in the company, they are taxed in the year the company earned them.

It's different if the company is registered as a separate taxable entity. One example is the C Corporation, which is rather unusual for smaller businesses. Here you can of course pay yourself a salary, which is taxed as wages at the normal rates. Alternatively, you can pay out dividends, which are generally taxed at 15% in the US.

Paying dividends comes with some complications, though. The bookkeeping isn't simple and you usually need a professional accountant. Dividends are also always taxed twice: first the full tax the company pays on its profits, then the 15% mentioned above that the recipient pays.

If a company has several shareholders, they naturally also need to agree on the amount of dividends, and coordinate carefully whether money is paid out as dividends or as salary.

All in all, paying yourself a salary instead of dividends in the US can be very worthwhile in some cases. Even so, find out in advance exactly which steps your chosen approach requires, so that everything is right for tax purposes afterwards.

2.2Big advantages of a salary for residents of low-tax countries

The taxes on the salary you draw from your US company, discussed above, are of course only as high as the income tax you pay in your country of residence. That brings big advantages for residents of some countries.

Residents of places like Dubai are naturally at an advantage, because Dubai levies no income tax. All types of personal income are tax-free, including salary, pensions and investment income such as dividends, interest and capital gains of every kind.

This approach is also interesting for people who have settled in Ireland, Malta, Cyprus or similar countries as a non-dom and pay no tax on this income there as long as they do not bring it into their country of residence. In the UK, by contrast, non-dom status was abolished as of 6 April 2025.

2.3Watch the size of your salary

If you decide to pay yourself a salary as managing director of your own company, think carefully about the amount of that salary in advance.

Even if it looks otherwise at first glance, it is not really flexible. If the company earns twice the profit next year, you cannot simply double your salary, because you would have to justify the increase to the tax authorities with sound reasons. And since the salary exists to avoid or reduce dividend payouts, higher company profits are definitely not a sound reason.

One option you do have is setting up another company that pays you a second salary of the same amount. Here too, think carefully about whether this step really pays off and makes sense.

3What this means for taking money out of your US company

If you run a company in the US, give real thought to how you pay yourself money out of the company. Paying out dividends is not always the most tax-efficient route, and there are usually better alternatives. For details by entity type, see our pages on taking profits out of a US LLC and taking profits out of a US corporation.

First, you can take a loan from your company. You will have to repay it at some point, though, and the loan must meet every requirement the tax authorities set for a genuine loan.

Alternatively, you can pay yourself a salary as managing director. This pays off under certain conditions if you live in the US yourself, and for residents of Dubai or people with non-dom status it is almost always the best option. Where your salary is ultimately taxed depends on your residence, and if you run your US LLC with no US permanent establishment at all, our sister firm zerotax.llc is the right place to go.

If you are still planning and unsure what suits you and your company, just get in touch. We have years of experience with every type of US business entity and are happy to advise you on your personal situation. Our Taxes hub gives you an overview of the entire US tax system, and the page on the US tax system and US tax law covers the details.

In short

• Dividends are usually expensive, in the US as in Europe. The two alternatives are a loan from your own company and a salary as managing director.
• A shareholder loan needs a proper agreement, interest at least at the IRS Applicable Federal Rate and proof that you intend to repay it. Otherwise the IRS treats it as a dividend.
• A salary is subject to normal income tax and cannot simply be raised in line with rising profits.
• With a C Corporation, distributed profits are taxed twice; with an LLC or S Corp, profits are taxed in the year they arise.
• For residents of Dubai and people with non-dom status, a salary is almost always the best option.

How we help you

• Tax structureA clean structure between parent company and US subsidiary, or between you and your US company, coordinated with your accountant.
• Corporation tax returnForm 1120 and Form 5472 for your US corporation.
• LLC and LP Tax ReturnForm 1065 and K-1 for your LLC or LP.
• PayrollPayroll, payroll taxes and filings for your employees in the USA.
• US Tax ConsultationYour US tax question, answered by people who know both sides.