Hi. I am about to embark on my first business adventure. My family is offering me an unsecured 50,000 loan plus interest, which will be due at the end of 5 years plus 7.45% interest. My question is, can I write off the interest and/or the principle when I file my taxes if it is a personal business loan from a non-bank lender?
2006-11-20 07:17:10 · 2 answers · asked by Jeremiah 1 in Business & Finance ➔ Taxes ➔ United States
I just wanted to thank you guys for your answers and professionalism. They were most appreciated.
2006-11-21 08:50:00 · update #1
If the loan proceeds go into the business, then the interest will be deductible by you and taxable to them. Since the loans are coming from family members, you will have to have legally enforceable loan documents drawn up to support your position that the money was a loan and not an equity investment or a gift or else the IRS would be able to challenge your deduction. Understand also, if you default on the loans, your relatives would have to take every available step to try to collect before they could write off the debt as a business bad debt. Also, if you do not repay the loans, you will have constructive income from debt forgiveness.
2006-11-20 08:05:29 · answer #1 · answered by Andreas 3 · 2⤊ 0⤋
1
2016-09-27 22:46:00 · answer #2 · answered by Kenneth 3 · 0⤊ 0⤋
Andreas is absolutely correct. Another important thing to remember is that the interest rate charged by your family should be competitive to what other lenders would charge. 7.45% seems ok. This should be clearly stated in the agreement.
You get the deduction, but they must also report the income. It would be wise for them to issue you a 1099 - just another way for the IRS to see that you are on the up and up.
How you are able to deduct your interest payments depends on the type/structure of the business venture. It can be directly deducted against business income, or it can be reported on your Sch. A as Investment Interest (which can be limited but carried forward if not used in the current year).
2006-11-21 04:57:42 · answer #3 · answered by jkhickey 1 · 0⤊ 0⤋
the nice and comfortable button is that the deepest loan would desire to be secured by utilising the residing house or used for deductible applications (from Pub 936): "which you may take a house loan interest deduction, your debt would desire to be secured by utilising a qualified residing house. this implies your considerable residing house or your 2d residing house. a house includes a house, house, cooperative, cellular residing house, residing house trailer, boat, or comparable sources that has drowsing, cooking, and bathroom centers. The interest you pay on a private loan on a house different than your considerable or 2d residing house may be deductible if the proceeds of the deepest loan have been used for company, investment, or different deductible applications. in any different case, that's considered very own interest and isn't deductible."
2016-12-28 06:49:35 · answer #4 · answered by ? 4 · 0⤊ 0⤋
Personal loan is a great support. I am going to take a personal loan from famous bank around. They offer me a great support. http://centuryfinancenc.org/
2014-02-03 11:02:40 · answer #5 · answered by ? 2 · 0⤊ 0⤋
Off the top of my head......
1) Principle Payments are never deductable. The items that the business spends the cash on may be though.
2) Investment Interest is deductable but only up to Investment Income. (Investment Income = Interest Income + Dividends + Elected Capital Gains).
3) Your family will have to claim the interest income on their respective Schedule B's.
2006-11-20 08:17:04 · answer #6 · answered by Wayne Z 7 · 0⤊ 3⤋