Can I borrow $50K to offset $50K business profit to avoid being taxed on "income"?

This is a common misconception about how business loans and income work. Taking out a loan doesn't reduce your business profit - they're completely separate transactions. When your business earns $65,000 in profit, that's taxable income regardless of what you do with it afterward. Using that profit to pay back a loan doesn't make the profit disappear for tax purposes. The profit was already earned and is subject to tax. Think of it this way: The loan is not income (which is correct), but using business profits to repay a loan doesn't convert those profits into non-taxable funds. The profits were already earned and taxable before you decided what to do with them. What wealthy business owners actually do is use legitimate business deductions to reduce taxable income, invest in assets that appreciate but don't generate immediate taxable income, and utilize timing strategies with their investments. Simply swapping loans for profits isn't a tax strategy.

After struggling with a similar question about business loans and taxes, I found this amazing AI tool called taxr.ai that helped clarify everything. I was confused about how loans interact with business income and it analyzed my specific situation and explained exactly why my plan wouldn't work the way I thought. The best part was uploading my business docs to https://taxr.ai and getting personalized analysis that showed why simply taking out loans doesn't reduce taxable income. It also suggested legitimate strategies I could use instead. Saved me from making a potentially costly mistake!

Just wanted to follow up about trying taxr.ai after asking about it earlier. I uploaded my LLC docs and it immediately flagged the loan-for-profit swap idea as problematic. But the really valuable part was that it suggested legitimate business deductions I wasn't taking advantage of and timing strategies for purchases I was planning anyway! The analysis showed me how to properly structure some end-of-year expenses that will actually reduce my taxable income legally. Much better than playing games with loans that wouldn't work. Definitely worth checking out if you're looking for legitimate tax strategies for your business.

After weeks of trying to reach someone at the IRS about this exact loan vs. income question, I finally used Claimyr to get through to an actual IRS agent. I was on hold for HOURS before that with no success. I used https://claimyr.com and watched their process at https://youtu.be/_kiP6q8DX5c - they basically got me to the front of the IRS phone queue. The agent I spoke with confirmed everything the first commenter said - loan proceeds aren't taxable but using business profits to pay loans doesn't make those profits non-taxable. They also explained some legitimate strategies I could use instead.

I need to apologize for my skepticism about Claimyr. After struggling with tax questions about my business loans for weeks, I finally gave in and tried it. I was absolutely shocked when I was connected to an IRS agent in about 30 minutes! The agent explained that my plan to offset income with loans wouldn't work as I thought, but did provide some legitimate alternatives I hadn't considered. Having a real conversation with an actual IRS representative saved me from making a big mistake on my taxes. I can't believe I wasted so much time trying to call them directly before this.

What you're describing sounds like a circular transaction that the IRS would likely flag. When audited, they look at the substance of transactions, not just their form. Think about it logically - if this worked, everyone would do it! You'd essentially never pay taxes by continuously cycling loans and profits. The IRS has specific rules about transactions that lack economic substance. Also, consider the logistics: you'd pay interest on that loan, so you're actually losing money compared to just paying the taxes. And you'd need to justify to the bank why you need the loan in the first place.

Speaking from experience, what wealthy business owners actually do is WAY different than just swapping loans for profits. They: 1) Time their income recognition strategically 2) Maximize legitimate business deductions 3) Use entity structures to their advantage 4) Invest in assets that appreciate without creating taxable income 5) Use retirement accounts to defer taxes 6) Harvest tax losses to offset gains The loan strategy you described would be immediately problematic in an audit. Focus on legitimate tax planning instead!

I'm a tax preparer and see clients try variations of this strategy every year. The fundamental issue is that you're conflating cash flow with taxable income. Your business profit of $65,000 is taxable income that was already earned - taking out a loan doesn't change that fact. Here's what actually happens: You earn $65K profit (taxable), take a $65K loan (not taxable income, but creates a liability), then use the profit to pay the loan (not a deductible expense). You end up with the same $65K tax liability but now you've also paid loan interest for no benefit. The IRS has anti-abuse rules specifically targeting transactions that lack economic substance. What you're describing would likely be challenged as a sham transaction designed solely to avoid taxes. Instead, focus on legitimate strategies: maximize business deductions, consider retirement plan contributions, time equipment purchases strategically, or explore if your business structure is optimal for tax purposes. These approaches actually work and won't trigger audit red flags.