If you're a business owner, your company may be a valuable source of cash. Borrowing from your firm may be more appealing than applying for a bank loan or using credit cards for money you need personally. There's a catch, though. If you borrow from your company at a below market rate, you might have to pick up taxable income equal to an imputed interest rate.

In a truly worst case scenario, the IRS might call the transaction a dividend rather than a loan. You'd have taxable income equal to the amount received, and your company would not get a deduction. Fortunately, there are some exceptions for loans between employees and employers that you might be able to use when borrowing from your company.

Modest amounts
Loans that total no more than $10,000 won't trigger imputed interest. Be sure to make the loan formal, with repayment terms, in order to avoid its recharacterization as a dividend. (In fact, you should make any loan between you and your company formal.)

Relocation
A loan made in connection with a business-related relocation also may avoid such adverse tax consequences.

Suppose your company moves from one area of the U.S. to another. You move to be near the company. In this scenario, your company could loan money to you, interest free. No interest will be imputed if certain conditions are met. Such a loan must be secured by your new residence, which must be at least 50 miles from the old one. The loan must not be transferable.

You, the borrower, not only must promise to perform future services, you also must pledge to itemize deductions each year the loan is outstanding.

Bridge loans
In today's housing market, you may find it difficult to sell your home quickly. At the same time, you may want to buy a house right away if your company moves to a new location.

The tax code allows you to take a low-interest bridge loan from your company. In order to avoid tax problems, you must meet all of the preceding conditions for relocation loans.

Other conditions also apply:

• Under the terms of the loan, the debt must be repaid in full within 15 days after the sale of the old home.

• The amount of the loan can't exceed your equity in your old home. (You're allowed to make a reasonable estimate.)

• The old home must be sold rather than converted to business or rental property.

Separate checks
If you hope to qualify for a relocation or bridge loan, a savvy strategy is to open a separate bank account in which the borrowed funds may be deposited. That will make it obvious the loan proceeds have been used to purchase a new residence, helping you to justify your reliance on one of those exceptions.