Can the personal money I used to start my business be considered an interest free line of credit / IOU which the business has to return back to me?

[hawaiianstyle808]

I'd like my business to return the money I lent it to startup without incurring any income tax as the lender. Is this possible?

[RobertG]

A loan is not deductible when it is lent, and is not taxable when it is paid back.  It is also not taxable when received, and not deductible when paid back.

When you lent money to your business, your business deducted the expenses it spent the money on.  You can't deduct the loan, so you don't have to report the repayment.

Your business cannot deduct the repayment of a loan, to you, or to anyone else. 

It can only deduct the business expenses it spent the money on.

[hawaiianstyle808]

Thank you for replying.

So would I not report any income until I’ve repaid the loan to myself?

I borrowed initially and began to use any revenue to cover cost to start and grow my business and have slowly been repaying myself the loan in increments.

[DianeC958]

No, when you repay the loan to yourself it is not income.  You would only have income to report if you are paying yourself interest on the loan.

Link to What is Taxable Income

[hawaiianstyle808]

Thank you for your reply.

sorry if I’m slow to catch on.

If I lent myself $100 to start up to buy materials, then made $200 over the course of 2019,

Could I simply pay myself back the initial $100 loan, then just report everything AFTER that?

[JamesG1]

I assume that you are reporting self-employment income as a sole proprietor on Schedule C of the 1040.

In your example above, you generated $200 of self-employment income and you would pay taxes on that $200.

You would pay yourself back the $100 but that payment is not a taxable event.  It is not reported on your tax return.

[refaathafez]

I'm  reporting self-employment income as a sole proprietor on Schedule C of the 1040.  I have similar case / question . as i did investment in my Business $10 k , so if my business generates $ 30 k  net profit / income ,can i pay myself back the $10k ?  then  wash out from the net profit income to be $20 k ??? . 

and for my personal income the payment back of $10 k will not be reporting as taxable amount . 

[VolvoGirl]

No.  The "loan" is  not considered on schedule C or  anywhere on your personal return.  Self Employment on schedule C is a disregarded entity.   All the business income and expenses are your personal income and expenses in the first place.  You don't pay yourself or take any withdrawals.  It doesn't matter you "loaned" the business money, it came from your own pocket.  Doesn't matter how you paid any expenses like from a business account or your personal bank account or credit card.  And you don't report the loan.  You report the expenses you used with the money.   Even if you got a business loan from a bank, etc.  you would only report the interest on it, not the loan itself.