Let’s say a friend and I each used $10,000 each from our personal savings to start up a small business. We pay ourselves our salary each month but how does the business repay the start up money? Is it a seperate payment from the salary? We don’t claim it as income, correct?

Pretty simple really. Decide on an interest rate, about how much you would like to receive a month, and have your accountant amortize the "loan." Then just pay yourself that amount, in a separate check each month. The interest is expensable. You do not have to claim the principle as income come tax time, but you will need to claim the interest. Your accountant should draw up a 1099-MISC for you.