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View Diary: Apple launches iRomney (62 comments)

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  •  it is hard to wrap your head around (0+ / 0-)

    If you want to start a small business, you might go to the bank and take out a loan in order to invest in capital expenditures/investments to get up and running.  It would be perverse in the extreme not to call that a legitimate business expense.  Of course the small business is only going to feasibly borrow from a domestic creditor who will owe increased taxes on the interest you pay commensurate to the decreased taxes you owe from deducting the expense of the interest.  Actually the creditor is likely to be in a higher marginal tax bracket than the small business and so owes more taxes.  Though the creditor also gets to take advantage of the losses that a bankrupt company produces to reduce their profits despite this being a cost of doing business built into the interest rate.  

    But so far everything is honky dory and Uncle Sam is getting roughly what it is owed from someone.  So it isn't debt itself that it is the problem.  It is that these arrangements are being set up in such a manner that the creditor doesn't owe any taxes on the interest that it earns.  And frequently the creditor and the borrower are essentially the same entity.  No one thinks there is a legitimate reason to borrow money from yourself and it not be a scam.  The only other example I could envision is people that borrow money from their own IRAs.  I'm not even sure under what circumstances if any that is allowed, but if it is I'd be willing to call it a scam as well.

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