How to advance money to a start up for tax purposes?
Posted by admin @ Saturday, Dec. 13th 2008
kruzo asked:
I am about to advance some money to a startup company (a Massachusetts LLC) to cover their startup costs. What do I need to do to make this money deductable on my personal income tax, particularly if that company ends up failing? How do I formally “give” this money to them and how do I write them off on my own 1040?
I am about to advance some money to a startup company (a Massachusetts LLC) to cover their startup costs. What do I need to do to make this money deductable on my personal income tax, particularly if that company ends up failing? How do I formally “give” this money to them and how do I write them off on my own 1040?
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December 15th, 2008 at 11:51 pm
Start up costs are not deductible. They must be amortized.
December 18th, 2008 at 3:10 am
If you have not already secured your cash advance, you may want to look into government grants…basically free money that you do not have to pay back.
December 21st, 2008 at 8:37 am
Investing in a company (debt or equity) is not deductible. It is an asset that you hold similarly to buying stock or bonds in a publicly traded company.
IF the business venture fails, and you have exhausted all of your collection efforts, you can write off the loss of principal in the investment as a Capital Loss subject to normal capital loss limitations.
Get something in writing such as a promissory note.
December 24th, 2008 at 6:09 pm
It isn’t deductible. Depending on how the advance of the money is structured, if they fail you might be able to take a deduction for the amount of your loss. That won’t give you the whole amount back, only a small % of it on your taxes.