Write off repayment of a business loan


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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?
— Geoff

Dear Geoff,
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.

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