I don’t know the details of the related party laws that Mike was talking about, but I have some thoughts you should consider.
You want to transfer money from the corporation to the sole proprietorship by having the sole proprietorship charge a referral fee to the corporation. The first thing I would say, is that your corporation can pay ordinary and necessary business expenses. You can’t just move money around for convenience. If the sole proprietorship provided something of value to the corporation that you would pay the same price to another business, that sounds like a legitimate expense. For example, if you want the corporation to pay the sole proprietorship for its customer list, how much would you pay the unrelated business for the same customer list?
Second, I don’t know why you would want to do this. The income taxes on the sole proprietorship are at least the same as the income tax on the corporate income. Remember that if you materially participate in running the corporation or providing services to the corporation, the corporation must pay you a fair market salary on a W-2, and pay all the related employment taxes, unemployment insurance, and so on. After you have been paid a fair market wage on a W-2, you may be able to withdraw additional profits at a lower tax rate, but you must pay yourself a fair wage first. If this transfer of funds results in the corporation having a loss, you may still have to pay yourself on a W-2 for running the corporation, in which case you will have paid double taxes on the same money, the profits in the sole proprietorship and the fair market wage for running the corporation.
And of course, if you have not issued yourself a W-2 yet for the corporation, you are quite late and may have compliance problems with the IRS. Your corporate tax return was due March 15, 2021, unless you had an approved extension.
The bottom line is, you can’t simply move money around for convenience, or to “align“ your tax positions. You must have a legitimate business reason for doing so.
