Legal Question in Business Law in California
Is there taxes on money borrowed to start and operate a business?
I am involved in a business that is currently not generating any income. In order that I support my self and pregnant wife, I am and have been borrowing money from friends and family (or who ever will lend it to me) and in exchange I am promising them 'X' amount of money once I am able to start generating income.
Is this money taxable?
Do I need to report borrowed money to the IRS?
3 Answers from Attorneys
Re: Is there taxes on money borrowed to start and operate a business?
Generally speaking, borrowed money is not income.
Re: Is there taxes on money borrowed to start and operate a business?
Borrowed money is not taxable. However, you may be illegally selling securities.
Re: Is there taxes on money borrowed to start and operate a business?
Borrowed money is not taxable and loans need not be reported to the IRS. There are a couple of things to keep in mind however. In answering this question, I have made a couple of assumptions: 1. I have assumed that the loans are not secured, and particularly not secured by any interest in the stock of the new company; and 2. The loans are not convertable into shares of stock in the new company. Be sure to document the loans and make it clear the the loans are really loans with specific provisions for repayment. If they are construed as gifts and they are large enough in amount, the IRS, assuming they find out about them, might construe them as gifts and impose a gift tax on the lender(s). How might the IRS find out? In the (admittedly highly unlikely but dismal) event that the business fails and you are unable to repay the loans, the lenders may choose to write them off against income as a bad debt. Best of luck in the new venture.
Related Questions & Answers
-
Obligation when giving price quotes When an business gives a price quote, in... Asked 10/25/02, 4:26 pm in United States California Business Law
-
Constitutional Rights What Laws have been broken by the State, when you Pass ALL... Asked 10/24/02, 6:06 pm in United States California Business Law
-
Confidentiality Agreement in Illegal/Unethical Situation If an employee signs a... Asked 10/23/02, 2:04 pm in United States California Business Law
-
Partnership Law In California, if a business has entered into an oral partnership... Asked 10/22/02, 2:16 pm in United States California Business Law