Write off repayment of a business loan
Dear Tax Talk,
I received a $30,000 loan in the form of a promissory note in the company's name from a family member to start a business. Can I write off repayment of that loan on my business expenses?
It is great to have a supportive family when you are starting a new business. The interest that is being paid on the promissory note is tax deductible; however the amount that represents principal is not.
Your inability to write off repayment of a business loan will make more sense to you if you understand that when the loan was received by the company, it was not included as taxable income. Thus, when the loan is repaid, you are not able to deduct the payments.
However, all is not lost as there is another part to this scenario that you have not considered. That is, what did your new business do with the money it borrowed from the family member? If the money was put into the company and then used to purchase business assets or pay operating expenses, then those expenses will be deductible to the business.
Wishing you much success in your new business venture.
Ask the adviser
To ask a question on Tax Talk, go to the "Ask the Experts" page and select "Taxes" as the topic. Read more Tax Talk columns.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.