GraceNY Posted September 10, 2012 Report Share Posted September 10, 2012 Sole Proprietor needs a new vehicle for her business (100% Business Use). Rather than obtaining a vehicle loan through a bank, could she borrow the money from herself and deduct the interest on that loan on her Schedule C? A properly drafted Promissory Note that included a repayment schedule, maturity date, default provisions etc would be executed. Grace Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted September 10, 2012 Report Share Posted September 10, 2012 Simple answer... No. Quote Link to comment Share on other sites More sharing options...
mcb39 Posted September 10, 2012 Report Share Posted September 10, 2012 It wouldn't make any sense even if it was allowed. She would have to claim the interest as income. Quote Link to comment Share on other sites More sharing options...
michaelmars Posted September 11, 2012 Report Share Posted September 11, 2012 It wouldn't make any sense even if it was allowed. She would have to claim the interest as income. BUT SHE WOULD SAVE THE FICA TAX IF SHE DID THIS. sometimes clients are cleaver and tricky Quote Link to comment Share on other sites More sharing options...
mcb39 Posted September 11, 2012 Report Share Posted September 11, 2012 I knew that. Do you really think a taxpayer would be that devious? :dunno: Quote Link to comment Share on other sites More sharing options...
Pacun Posted September 11, 2012 Report Share Posted September 11, 2012 If you are purchasing a new "vehicle" with 18 wheels, you can 179 it on Schedule C. Quote Link to comment Share on other sites More sharing options...
Pacun Posted September 11, 2012 Report Share Posted September 11, 2012 Since we are taling about a disregarded entity here, the promisory note would read, I, pacun, promise to pay pacun 10% interest.... Quote Link to comment Share on other sites More sharing options...
jainen Posted September 11, 2012 Report Share Posted September 11, 2012 >>A properly drafted Promissory Note that included a repayment schedule, maturity date, default provisions etc would be executed.<< I wonder what sort of "default provisions" she has in mind. Then could she claim a bad debt when she refuses to pay herself? On the other hand, you all know I'm an arrogant contrarian (at least on this forum), so of course I'm going to argue that she CAN do this. Furthermore, I insist that it is really not so unusual. In fact, transactions between a business and its owners is a key planning element in choice of entity. She might want to look at forming an LLC, S-corp, or partnership. Even a sole proprietorship can elect to be taxed as a corporation, and that would pretty easily allow a shareholder loan. Allternatively, she could run her own non-business assets through a third party for a passbook or home equity loan, etc. So, Grace, find out what exactly her business purpose is, and maybe we can find a legal way to accomplish it. Quote Link to comment Share on other sites More sharing options...
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