2006-11-21 01:57:58 · 10 answers · asked by donewiththismess 5 in Business & Finance ➔ Taxes ➔ Other - Taxes
I was starting a new business. I went through my saving rather quickly so I friends and family pitched in and sent me money. (btw, something VERY hard for me to accept) So now business is flourishing and I have paid everyone back. It's made me pretty broke this year, but I am all paid off. So I have watched money come in, but I paid it back to them in a following year. I pay taxes on the money that came in that I paid the the people back with?
Example: Mom sends 5000. in 2005, I earn some money and pay 5000 back the following year. Pay taxes on earned money and pay taxes on loan?
2006-11-21 02:18:05 · update #1
You don't pay taxes on loans. You pay taxes on whatever income you made in any given year, and don't deduct or pay taxes on any loan amounts you received or paid back. You don't mention interest - if you paid interest, you might be able to deduct that part depending on how the loan was set up - if you do, the recipient of the interest would have to declare it.
Congratulations on getting your business up and running. It's not unusual to underestimate the amount needed for startup and for living on at first before the business makes money. You were fortunate to have family willing to pitch in and keep you afloat, and they're fortunate to have a family member who got a business running and paid them back.
Good luck in the future.
2006-11-21 02:40:03 · answer #1 · answered by Judy 7 · 0⤊ 0⤋
You don't pay taxes on the initial receipt of the loan from your family. After receipt of the loan you should be taking an interest deduction and your family members should be picking up interest income, even if you didn't pay interest.
Paying back the principal of the loan is not a deductible item for you. The receipt of the income is taxable to you. You can't deduct paying back the principal of the loan and it is not income to your family.
2006-11-21 15:33:25 · answer #2 · answered by BHWMST 3 · 0⤊ 0⤋
Generally speaking, receipt of a loan does not result in taxable income. So if I loan you $5,000 it is not taxable to you as income. When you pay me back it is a non tax event because it is not deductible by you and of course it is not taxable to me since I am only getting back the same money I lent you. If I charged you interest the interest would be taxable to me because it is additional money above the money I lent you. And of course it would be deductible by you as a business expense.
2006-11-21 10:56:52 · answer #3 · answered by JOHN 2 · 0⤊ 0⤋
I think you would only pay taxes on income. A loan isn't income, but what did the loan benefit? Did you earn money somehow on that loan? That would be taxable.
2006-11-21 10:08:49 · answer #4 · answered by thellord_thighgod 3 · 0⤊ 0⤋
Money you receive in a loan is not taxable. Money you pay to retire a loan is not taxable. If you pay interest on money you have borrowed and it is business related expense then it may be deductible; or if it is for a home mortgage then it would be deductible if you itemize.
2006-11-21 10:18:31 · answer #5 · answered by acmeraven 7 · 0⤊ 0⤋
If you were the recipient of the loan you would not declare it at all. A loan is not regarded as income -- especially since you say you paid it back. You owe no taxes.
2006-11-21 10:01:00 · answer #6 · answered by Jack 7 · 3⤊ 0⤋
I didn't know you paid taxes on a loan. Really. If it was from a family member or friend (someone other than a financial institution) don't worry about it. I'd ask a tax advisor this question. Perhaps go to hrblock.com & email them.
2006-11-21 10:00:34 · answer #7 · answered by IMHO 6 · 0⤊ 2⤋
Why would you pay taxes on borrowed money?
You don't need to pay taxes on the money borrowed, only on the income.
2006-11-21 09:59:04 · answer #8 · answered by Anonymous · 0⤊ 0⤋
You would only pay taxes on the interest.
2006-11-21 12:44:53 · answer #9 · answered by George K 6 · 0⤊ 0⤋
You pay tax on money in the year you receive it.
2006-11-21 09:59:20 · answer #10 · answered by Robin 3 · 0⤊ 3⤋