S corp deduction of student loan payments as an expese for a principal

The business could account for the payment in several ways. But is must have been set up and done legally. The business could have set up a receivable from the student who could then re-pay the loan over a longer term. Or the business could have treated the payments as compensation to the student which would be taxable income to the student. Or, the business could have treated the payments as an employee benefit expense under a tuition re-imbursement plan so long as the plan was arranged and set up legally in advance. After the fact raises a red flag..

There are ways it can be done, however, another issue is the salary disbursement and if it is reasonable. I would recommend you meet with a tax attorney or CPA to discuss these issues.

There is definitely more information needed to properly answer this question. Are you filing personally and looking for the best way to calculate the principal's income, or is the company filing and attempting to disclose compensation of officers. If the money paid for the student loans was not a business expense, then it was profit and is taxable to the individual. Did the student lender send a form 1098 for claiming interest deductions on the personal income taxes? It definitely sounds like something you should consult with a lawyer rather than attempting to do on your own.

I agree with all the answers. You need to watch out for any tax issues this situation creates and plan accordingly.