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I want to extend a loan of $50,000.00 ,interest free, to a friend to start a business. Can he deposit this check into his account and not incur any tax difficulties? Are there any tax implications for me? What are the benefits of funding the firm in a different way?

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    is there any reason to make this a loan and not an equity investment? For accounting reasons this might be better for all involved, depending on which tax authority/authorities you come under. – MD-Tech Oct 16 '15 at 11:15
  • I am in the USA. In the state of Pa. and so is my friend. Would you please explain an equity investment? Also why that would be advantageous over a loan? Thank you so much for taking the time to answer my question – Barbara Behrens Oct 16 '15 at 15:05
  • An equity investment is where you receive a percentage of the company ownership rather than providing a loan. The disadvantage of interest free loan is you're losing money on inflation risk. The advantage of equity investment is the potential upside you have if the company actually does well, and you have more control. The disadvantage of equity is there's more risk, equity has lower seniority than debt. – Tom Sun Oct 16 '15 at 17:04
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    You need professional advice (from a tax attorney and maybe even an accountant), not advice from random strangers on the internet. The US tax code is very complicated. Likely you would be on the hook for taxes if you do not charge enough interest (let alone for not charging any interest). How to loan money to family and friends would be a pretty good resource for you at the moment. – mikeazo Oct 16 '15 at 19:22
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    Also, this basic article on equity investment vs loan would be good to read through. – mikeazo Oct 16 '15 at 19:23

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