Thanks for your blog, I really enjoy it.
I have a question about deductions. I went to school for business but long story short, couldn’t find work and moved back home. I decided to follow my original passion and open a photography studio. Since I didn’t have a job, my mother bought all of my equipment. Can I deduct the cost of the equipment on my taxes even though I didn’t pay for it? What if I promised to pay her back?
First of all, congrats on opening the photography studio! As a fellow entrepreneur, I think it’s very cool that you’re following your dreams.
The easy answer to your question is no. If you didn’t pay the expenses, you can’t take the deduction (or amortization/depreciation, depending on the nature of expenses).
I’m a little confused, though, by the last bit. It sounds like you’re asking whether you can make it a loan after the fact (or maybe you already agreed to pay her back?). If that’s the case, my answer is perhaps. But it would need to be a bona fide loan. Just cause your mom isn’t Citibank doesn’t mean that you can just wander through the kitchen and nonchalantly mention that you might pay her back some day and call it a loan. It needs to be documented, with paperwork and proper interest. And it needs to actually be paid back.
The IRS scrutinizes related party transactions, including loans, for business purposes pretty closely. So if this is a loan – and not a gift – you need to take it seriously.
But if this is a gift – and never meant to be a loan – don’t make things more complicated than they need to be just to eke out some tax savings that you’re not entitled to. You’ll just get the both of you in trouble. Instead, give your mom a big hug and a kiss (and tell her thank you – again!) for helping you out. She sounds like good people. And then find an apartment.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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