Small Business Tax Center
Small Business Ideas, Grants &
Plans to Start & Run a Business:

Small Business Grants
CyberSchmooz
Network in Cyberschmooz Community Ask Questions Questions and Answers Share Tips Small Business Ideas List Your Business Business Advice from Idea Cafe Experts Coffee Talk with Experts Starting A Business Business Plan Biz Planning | Sample Plans Small Business Ideas Idea Name Your Biz Name Plan Your Biz Plan Financing $ Starting a Business Do It! Running your Business Marketing Tips Promotional Merchandise Marketing Tips Marketing | Sales | Customers Human Resources HR | Employees | Contractors Legal Forms & Tax Information Legal | Biz Forms Managing a Business Managing | Operations
Financing Resources Financing Your Business E Commerce & Webhosting eCommerce Take Out Info Trade Publications FREE Trade Publications Business Books Biz Books Your Own Business Small Business News Small Biz News Gen X Biz Gen X Biz Work at Home Work @ Home Business Information The Fridge - Biz Info on Ice Destress Send Awards Send Awards & Greetings Yoga At Your Desk Yoga @ Your Desk Fun Guide Guide to Find FUN Online About Idea Cafe Press Idea Cafe has received Idea Cafe in the News Idea Cafe's Kudos Kudos for Idea Cafe Advertise on Idea Cafe Advertise on Idea Cafe Privacy Policy Privacy Policy Contact Idea Cafe Contact Idea Cafe Link to Idea Cafe Link to/from Idea Cafe Join Idea Cafe
Search Idea Cafe Site Directory Site Map SMARTpages.com Find a Business, Person, or
    Directions at SMARTpages
Online directory to business resources Biz Web Guide



Featured Biz Question

I'm borrowing a chunk of money from a family member to buy a business that's been in operation for 18 years successfully. I know I'll pay her back no problem. The thing is, this loan (which I'll draw up a promissory note for) will be paid back with interest. This interest is tax-deductible, right? Will she have to declare this on her income tax as income? She's taking out a home equity loan just to get me the money and is only charging me the same interest as she's paying. Should I not claim it on my business' income tax return? What do you suggest?

Each week we pluck reader questions from CyberSchmooz and ask our savvy biz experts to give you their ideas -- compliments of the house! Got biz questions of your own brewing? Go post 'em in Idea Cafe's CyberSchmooz. You'll get peer-to-peer help from fellow entrepreneurs. And bookmark this page so you can check back here soon -- maybe our experts will single out YOUR question next!

Have a biz question of your own? Go post it in Idea Cafe's CyberSchmooz

Answer from our Guest Expert Peter Soh of AdviseInc.com

Loans of any kind are not tax deductible because they're not considered expenses. But you're right, the interest on these loans is tax deductible.

Because your loan is a family one, the related-party tax rules kick-in. The related-party rules for expenses are "cash-basis." This means that expenses can only be deducted when paid, or expenses can be deducted when the lender includes the interest amount as income. These rules apply, except for below market loans, which are another ball of wax. Since you say your family member will charge you the same interest as the home equity loan, then the loan shouldn't be below market and you don't have to worry about this.

As far as where to claim the deduction. It depends. Will the business pay back the loan or will you? If the business pays it, then it should deduct the loan and be the party named in the loan documents. If you pay for it, then you should claim it on your individual tax return.

I'd also like to mention this situation definitely requires a tax professional since you're purchasing a business, and other tax rules come into play that interrelate with this transaction.

Hope this helps, if not, send me an email

Peter Soh of AdviseInc.com

If you're chomping at the bit to dish up some more advice for this person, click here and post your reply today! The more, the merrier!

About the Expert

Peter C. Soh
Owner of AdviseInc.com
Peter is a savvy certified public accountant dedicated to helping startups. He is a small business advisor for the U.S. Small Business Administration and teaches "How to Start Your Business" seminars. more

Meet the Experts

For more business advice, check Coffee Talk Answers

 

Google      

Small Business Tax CenterIdea Cafe HomeSign UpBiz Grant CenterCyberSchmoozCoffee Talk with ExpertsPeople in Biz ProfilesStarting Your BizBiz PlanningRunning Your BizFREE Trade PublicationsMarketingFinancing Your BizHuman ResourcesLegal & Biz FormsManaging Your BizeCommerceYou and Your BizGen XWork@HomeThe FridgeDe-StressSend an AwardSend an eGreetingYoga @ Your DeskWeb GuideIdea Cafe in the NewsAbout Idea CafeAdvertise on Idea CafeContact UsPrivacy PolicySite MapSmall Biz News

Copyright 1995-2017, Idea Cafe Inc. Downloads are for personal use only, not for resale to others, and may not be reprinted in any form without written permission from Idea Cafe Inc.

DISCLAIMER: We hope whatever you find on this site is helpful, but be cautioned that it may not apply to your own situation, or be totally current at any given time. Idea Cafe Inc. and all of its current and past experts, sponsors, advertisers, agents, contractors and advisors disclaim all warranties with regard to anything found anywhere on this family of websites, quoted from, or sent from Idea Cafe. and its related sites, publications and companies. We also take no responsibility for comments published by others on these pages.

TRADEMARKS: The following are Registered Trademarks or Servicemarks of DevStart, Inc.: Idea Cafe®, Online Coffee Break®, The Small Business Gathering Place®, Take out Info®, Biz Bar & Grill®, Complaint-O-Meter®, A Fun Approach to Serious Business™, CyberSchmooz™, and BizCafe™.