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How to advance money to a start up for tax purposes?

I am about to advance some money to a startup company (a Massachusetts LLC) to cover their startup costs. What do I need to do to make this money deductable on my personal income tax, particularly if that company ends up failing? How do I formally “give” this money to them and how do I write them off on my own 1040?

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4 Responses to “How to advance money to a start up for tax purposes?”

  1. Jss said :

    Start up costs are not deductible. They must be amortized.

  2. LitlGrlBigVoice said :

    If you have not already secured your cash advance, you may want to look into government grants…basically free money that you do not have to pay back.

  3. Wayne Z said :

    Investing in a company (debt or equity) is not deductible. It is an asset that you hold similarly to buying stock or bonds in a publicly traded company.

    IF the business venture fails, and you have exhausted all of your collection efforts, you can write off the loss of principal in the investment as a Capital Loss subject to normal capital loss limitations.

    Get something in writing such as a promissory note.

  4. Judy said :

    It isn’t deductible. Depending on how the advance of the money is structured, if they fail you might be able to take a deduction for the amount of your loss. That won’t give you the whole amount back, only a small % of it on your taxes.


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