Read the following case:
George and Laura Cox have just formed the Baxter Manufacturing LLC (named after Georges dog). They will be purchasing a large amount of equipment using a $500,000 bank loan. The bank has required them to personally guarantee the loan. They also bought the building in which they will house their business. They took out a $1,000,000 mortgage to pay for the building. Neither member was required to guarantee that loan. Laura has loaned the LLC $50,000 to help pay for start-up expenses. In addition, they have a line of credit, but do not plan to borrow anything against it right now. George and Laura expect to have about $40,000 in accounts payable at the end of the year.
George and Laura have requested to meet with you to discuss whether they can take a deduction for the debt they have incurred and if not, how do the loans affect them. In preparing for the meeting, you need to outline your thoughts to assist you in presenting the information during your meeting with the Coxes.
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