With your accountant chasing old expense receipts and your bookkeeping in dire need of an update, the looming tax deadline is creeping closer and will be here before you know it.
The good news? The interest you pay on your small business loan is tax-deductible!
How can you be sure the interest you’re dutifully paying can be written off? All you need to ask yourself is: Do I use the funds exclusively for my business? If the answer is yes, the interest you pay to receive that loan principal is a 100 percent deductible business expense. It’s how you use the money that counts!
But, don’t forget the small print. Your deduction generally begins when you start to spend the borrowed funds to grow your business. If you’re holding onto your funds for a later date, you may not be able to deduct interest upon that sum ’til you use it.
Let’s review! You can’t deduct interest on:
What other cool deductions could you consider?
Uncle Sam lets you deduct car expenses related to your business. You can pick from two methods (Standard and Actual), so try both of them and see which one gives you a larger deduction! Hint: commuting doesn’t count, but driving to a trade show or client’s office is up for grabs.
Work from home? Forget the old standard method that requires you to calculate a million different figures you don’t have time to track. Use this simplified formula from the IRS for your home office deduction instead: $5 per square feet of area used exclusively for business (with a maximum of 300 square feet).
Still on the fence about hiring a lawyer and accountant? Legal and tax advice is also fully tax-deductible for every business type (corporations, LLCs, partnerships and even proprietorships), so now’s the time to make your business as compliant as possible.
As always, every business owner’s situation is different, so speak with a professional advisor or visit Nolo if you have any questions as you prepare your tax returns this year.