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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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i took an interest-free loan out from my sister and have been

Resolved Question:

i took an interest-free loan out from my sister and have been making regular payments to her for my small business. how do i file these on my taxes?
Submitted: 4 years ago.
Category: Tax
Expert:  Merlo replied 4 years ago.

Hello dj,

 

If you are not paying any interest on this loan, then there is nothing for you to report on your taxes. Repayment of a loan is not an expense to you. You are simply repaying money that you borrowed. The only expense you would actually have here is if you were paying interest on that loan. And if no interest is being paid, then there is nothing to report as an expense.

 

 

Thank you dj

 

 

Customer: replied 4 years ago.
But the loan was taken out to purchase an expensive item for my small business and would like to deduct the money I spent on that item. Would I just report that amount that I have paid back already on the entire loan? I would also like to report this item as part of my business property but can I do that considering that I have not paid back this loan.
Expert:  Merlo replied 4 years ago.

Hello again dj,

 

The loan itself is not something you report. The loan is not reported as income to you and therefore repayment of the loan is not an expense.

 

However, if you used the money to purchase equipment or for other business expenses, you will of course report the actual amount that you spent on those expenses, just the same as if you had used your own money to make those purchases. The only point here is that this really has nothing to do with the loan or the loan repayments. The loan itself is not income and the repayments are not an expense.

 

You will only report the actual amounts you spent on business expenses, the same as if you had used your own money to make these purchases.

 

 

Thank you dj

 

 

Customer: replied 4 years ago.
Thank you so much for your clarification. I will be accepting your answer with payment but I have one additional question. Can I include that item as a business property and indicate it's depreciation when I have not yet fully repayed the loan?
Expert:  Merlo replied 4 years ago.

Hello again do,

 

Yes, absolutely you may do this and should do this. Again, the loan is really an irrelevant factor here. It is the same as if you had used your own money. So you should list that item as business property and claim the full depreciation to which you are entitled. It does not matter that the loan has not fully been repaid.

 

That loan is a totally separate issue, and does not change the fact that you paid for an asset to which you are allowed to claim depreciation, regardless of how it was paid for.

 

 

Thank you do

 

 

Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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