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Thread: Funding

  1. #1
    God/dess GoldCoastGirl's Avatar
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    Funding

    I am planning to incorporate my stripping into a company type structure. I've already spoken with my account and for me (in re: my country's tax laws) I'm eligible to do so (from self employed structure in the Personal Services industry to a company structure same industry).

    Answer my question as per the laws etc in your own country.

    If I took out a personal loan (example: $5000) which was going to be used for business expenses only ($3000 to incorporate with the reaminder being used to cover business expenses: lease of a car, petrol etc for the car, travel, accomm., etc expenses associated with the company earning an income as such).... I'm naturally assuming that it would be tax deductible ?

    Or is only the interest tax deductible?


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  2. #2
    Banned Melonie's Avatar
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    Default Re: Funding

    Under US law, it would depend on how the loan was structured i.e. whether the loan was actually taken out by the business entity itself or whether the loan was taken out by an individual for the effective purpose of investing it in a business. In the former case, assuming that all of the borrowed money was used to fund legitimate business expenses, both the principal and interest would be directly deductible in one form or another.

    In the latter case, only the interest would be deductible for the individual, and any future 'loan payback' with interest by the business to the individual could be subject to taxes on the interest paid (effectively offsetting the original interest deduction). Of course, the actual business expenses incurred by the business would still be deductible by the business, so it would then depend on the exact nature of the business structure i.e. C corp vs. S corp/LLC as to the manner in which those business deductions would eventually result in a tax deduction or increase in income/equity for the individual.

  3. #3
    God/dess GoldCoastGirl's Avatar
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    Default Re: Funding

    Thanks Melonie... I'm hoping that helps someone.

    As for me (in Australia).. I have reply saying "You may have to borrow you money and to then on lend it to your company for the company to claim the deducitons. It should be OK, but you may need a written loan agreement to back it up in case of an audit."

    Will know more after the week is over.


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  4. #4
    God/dess montythegeek's Avatar
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    Default Re: Funding

    Vee,
    the way you describe Australian rules business would get rough-sledding in the US. The IRS would be skeptical of such a person-to-themselves loan as it could be used to disquise an income payment to yourself from the business. Arms-length transactions would get the least scrutiny--like the business borrowing the money from a bank with the individual acting as a cosigner and guaranteeing the loan but the company being the first-debtor.

    I would be sure I used a lawyer before I did such a move, or at least have a CPA have a clear audit trail that you the individual loaned you-the-company money and keep all receipts and records clean as a whistle.

  5. #5
    God/dess GoldCoastGirl's Avatar
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    Default Re: Funding

    Well, I've applied for a Personal Loan (unsecured) via my bank's website. The deductibility only really applies to the interest, in the end. Plus it is only deductible due to how the loan is used. The min. for a small business loan is $10,000 and I would need assets to qualify... so I opt-ed for a personal loan (unsecured).

    Since I'm using the loan to form a company and deposit the rest of the money into the company's bank account (so it can lease a car for me, apply for a credit card and so forth) therefore the money's going to be used for business expenses only... hence it is deductible.

    It's on my head, personally. The company can't "take it on" unfortunately... not without hassles.


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  6. #6
    Banned Melonie's Avatar
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    Default Re: Funding

    Good luck GCG. However, I have a sneaking suspicion that trying to deduct the interest paid on an unsecured personal loan as a business expense is going to be problematic for you at some point.

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