Business Loan Taxation

As a business owner, and to properly account for a business loan, you should be familiar the following tax issues that result from taking out a loan for your business.

 

1-A bona fide business loan should be a written document with the following information:

            Date of the loan

            Principal Amount Borrowed

            Interest Rate

            Loan Repayment Dates

            Lender's Name & Address,

            Business Borrower's Name & Address

            Collateral pledged, if any

            Amortization Schedule

 

2-Loans are not income to the borrower. Rather, a loan is either as short-term or long-term liability. Short-Term if the loan is for less than 1 year. Long-Term if the loan is for 1 year or longer.

 

3-The Amortization Schedule shows the date and amount of each required loan payment. For interest-bearing loans, each loan payment is broken down into a principal and interest portion.

 

4-Principal repayments reduce the outstanding loan balance (and are not a tax deduction).

 

5-Interest payments are a deductible business expense.

 

6-If the borrower is unable to repay the loan in full, cancellation of debt income, and gain or loss on asset disposal may result, depending on the specific facts and circumstances.

 

This article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
Visit us at: www.scoresouthflorida.net

 

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Visit us at: www.scoresouthflorida.net