For the last year or so I have been helping as a financial partner to a small business. The person has used the money for business as well as personal expenses and I'm wondering what I need to do to accurately record that for next year's taxes. I did this before and after the person went and got a formal business license. Is it possible to include expense from the period before the business was created?

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    What is your agreement with the owner? Are you getting equity, or is it a loan, or something else? You say partner, so I guess you have equity? Is there a written agreement? – prl Oct 2 '18 at 2:46
  • It's a personal loan to a close family member. We have nothing written explicitly stating loan or equity terms. – cooldudes202 Oct 2 '18 at 17:11
  • Are you writing off the amount invested and asking how to recognise that as a tax loss? Or are you asking about how to keep records so the business can accurately present its own accounts for taxation? Or are you asking about how you can claim the (pre-incorporation) business expenses as your own losses? – Lawrence Oct 2 '18 at 22:45
  • I'm trying to write off the amount invested as a tax loss including costs from pre-incorporation(it's an LLC not sure that qualifies). – cooldudes202 Jan 23 at 20:27

As a loan, it is not reported on your taxes when you make the loan. If/when it is repaid, you need to report the interest as income. If it is repaid without interest, you may still need to report some of the amount as “imputed interest” (which you should read about).

If it is less than $15,000 (per year), you could treat it as a gift, with no need to report it. If it is above that amount, you could still treat it as a gift, but you would need to report it, and the amount above $15,000 would be taken out of your lifetime gift exemption (currently $5.6 million).

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