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Sara is the sole owner of Yellow Corporation. Her basis in Yellow is $50,000. The...

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Accounting

Sara is the sole owner of Yellow Corporation. Her basis in Yellow is $50,000. The value of her stock is $100,000. In addition, to compensate herself for services that she provides to Yellow, Sara pays herself an annual salary of $40,000. Because of recent downturn in business, she needs to put an additional $80,000 into her corporation to help meet short-term cash-flow needs (to pay for inventory costs, salaries, and administrative expenses). Should she do a capital contribution transfer of $80,000 or a loan? What is best for tax purposes? Explain your answer.

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