Is the Interest on Your Business Loan Tax Deductible?
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Deducting Business Interest: The Short Answer
Deducting Business Interest: The Long Answer
Who Qualifies for a Business Interest Tax Deduction
You must be legally liable for the debt. That means that you (through your business) and no other party are responsible for paying back the loan. Both you and the lender intend the debt to be repaid. It needs to be a true loan (not a gift of cash) with repayment terms that you have agreed to and are spelled out in a legal document. You and the lender must have a true debtor-creditor relationship. If you borrow money from a relative or friend and use it for business purposes, it can be very tricky to deduct any interest you pay them. To do so, the loan needs to be set up like any other business loan. That means signing a promissory note, paying a reasonable interest rate, following a repayment schedule, and keeping records of every transaction.
When Is It Deductible?
When Isn't It Deductible?
interest on a personal loan if it’s used for personal expenses or to pay debts your business doesn’t owe interest that is being paid by a second loan (though interest payments on the second loan are tax-deductible) any fines or penalties paid to your lender interest that must be capitalized, which is interest added to the principal balance of a loan or mortgage (this interest expense needs to be depreciated along with the other costs of the asset) interest on overdue taxes (unless you are a C-corporation)
Different Deductions for Different Loans
Merchant Cash Advances
Business Acquisition Loans
Debt Refinancing Loans
Is There Any Reason Not to Deduct Business Loan Interest From Taxes?
Other Deductions to Keep in Mind
Payroll Tax and Employee Benefits
Frequently Asked Questions
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