USA S-Corp end of year bank balance taxed as income


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At years end there is a balance carryover for next years operating costs. This balance is shown as income line 17 Form 1040 Schedule E. My wife and I run the business as an S-Corp LLC. The wife has 51% ownership and I 49%.

I am not sure how this all balances out eventually and running a zero balance does not make since to me either.

Question: Does it make financial sense to draw the money out (since we are taxed on this in the first place) then relend this to the company as a loan for the next years startup operating costs?

Now since this is a loan, assumably have an Interest rate, this would now post as another income for us the next year end tax. So, now if we charged a ridiculous interest rate (maximum allowed anyway) and the company never paid the loan back, what tax advantage is there for the gift?

The reason I am asking is because I dont see the bank balance as income nor how the checks and balances finally do work out. I have asked accountants to help explain this but for some reason I still am not seeing this. So I am trying to figure out how I cannot be double taxed year after year for money I still never get to put in our pocket.

Ley me know please,
Thanks
Dan
 

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