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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