Commercial Business Loan Tax Issues

By: Ryan Mapes

With so many legal terms in a commercial business loan to worry about, you may not have considered the tax implications of your loan. But it is important to know exactly how accepting a commercial business loan will affect your taxes so that you can plan accordingly. Tax issues can be complicated, so refer to your CPA for specific advice.

Commercial business loans are typically not considered business income for tax purposes. Not only that, but the principal and interest paid on a business loan are considered business expenses, and can be deducted from taxes as such. Keep both of these in mind as you are calculating the total costs of a loan package.

DEDUCTION REQUIREMENTS
To claim a deduction on the principal and interest you pay on a business loan, you must report the total commercial business loan amount and show that the loan was used to further the operation, maintenance, or expansion of the business.

Be careful that it is a specifically a commercial business loan you are considering when submitting principal and interest deductions. For example, a payroll advance is not a loan because there is an exchange of services, even if those services by the employee occur in the future. Any payment that is given in exchange for goods and services at some point will not qualify as a loan.

If you negotiate with the lender after you have already received a loan, keep in mind that any forgiven debt is taxable. This can and should be taken into consideration in your negotiations. Also keep in mind that you may need to get a commercial business loan from your lender in the future.

ACCOUNTING
In order to meet the favor of the IRS, you must properly record your loan in the business financial statements. Current liabilities are usually considered debts that must be paid within the next 12 months. You will need to record the portion of the loan expected to be paid within the next 12 months as such. To find the annual expected amount, multiple your total monthly payments by twelve.

You also need to record the noncurrent debt of your long term commercial business loan. This is the principal amount left to be paid after the next twelve months have concluded.

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