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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16544
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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If I borrow 100,000 dollars start up funds for a private corporation

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If I borrow 100,000 dollars start up funds for a private corporation from my friend and issue him redeemable preferred stock as collateral at 10.00 per share and I have to buy it back in one year for 20.00 per share as the interest on the loan is the difference betweeen 10.00 selling price and the 20.00 buy back price a tax deduction for the corporation?

Megan C :

Thank you for your question, and thanks for using JustAnswer.com. How are you today?

Megan C :

Yes, the amount that you are describing would be interest expense and would be a tax deduction for you.

Megan C :

So, this amount is a tax deduction.

Megan C :

Do you have any further questions?

Customer:

Super, just one more thing. When I draw up this stock agreement I will be spelling out that the stock is collateral for the loan but do I have to spell out that the difference between the selling price of the stock and the buy back is the interest? If the agreement just stated the selling price and the buy back price wouldn't the difference be automatically a tax deduction because the company buy back was higher than the sale price?

Megan C :

Yes, that is correct

Customer:

Thank you

Megan C and other Finance Specialists are ready to help you
Thanks, Randall for your positive rating. Please come back and visit me any time you need a tax question answered. It was a pleasure working with you today.