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Richard, Attorney
Category: Business Law
Satisfied Customers: 53705
Experience:  32 years of experience practicing law and a businessman.
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A young man and his wife have started a home based baking business

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A young man and his wife have started a home based baking business in NC as sole proprietors. They are not related to me. I paid for the start up costs of the business - about $7500 dollars. I am not in any hurry to get paid back. Is this considered a gift by the IRS - and as such they cannot claim it on their taxes as a 179 deduction? Or would they need to pay it back this year? They started their business officially in June. Or can it be treated as a loan from me to be paid back over time?

Good morning. You should treat is as either a loan or a capital contribution. If a loan, it should be evidenced by a promissory note. If a capital contribution, it should be recognized in their formation documents. There is no required payback time...just however the parties agree. It would not, in either case, result in a 179 deduction for them. A 179 deduction is available only for things that they purchase; not for money coming to them.



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The information given here is not legal advice. As all states have different intricacies in their laws, the information given is general only. This communication does not establish an attorney-client relationship with you. I hope this answer has been helpful to you.

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