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Business Loans and Tax Deductions

Business Loans and Tax Deductions

Running a business is no joke. A business owner already has a number of challenges to face when it comes to the insane number of things to take care of financially. In order to keep things moving, many a times one has to apply for a loan and this situation is certainly not newly described to you if you own a company. Take the recent pandemic for example- it saw a number of businesses facing financial trouble around the globe, because of which there were a number of financial decisions to be made, including laying off employees or shutting down the business.

Business Loans and Tax Deductions

When you own a business, costs from the past that were included in your initial investment, costs that you incur every now and then (such as payroll expenses, employee benefits, amenities for the comfort of employees, stationery, electricity, fuel, rent, etc.) must be taken into consideration. Also, tax is certainly one aspect that drains you out, monetarily. If your business is facing a difficult time, people may turn to get financial aid from banks or business loan lenders. However, it isn’t surprising that everybody- from employees to business owners- is concerned about paying tax, and how to get it off one’s back to the maximum limit that that is possible.

It is understandable that if you need cash in the form of a business loan, which is a fairly large sum of money, you will wonder if you still have to pay the amount of tax that you were already paying, or if you’ll be granted some level of monetary ease.

Is a Business Loan Taxable?

In most situations, no. Since business loans require repaying the money with interest, it isn’t taxable when taken from an online lender or a bank. However, there are exceptions -for example if one’s debt is forgiven without it being repaid, then the balance money (or the money that wasn’t paid back) is considered to be income instead of a loan, and one has to pay income tax.

How Does Interest of a Loan Work around This?

What basically will be forgiven from taxes if the interest of your loan. That’s because, the loan’s amount that excludes the amount of the interest is being paid back, which is basically nullifying the amount since it is just money that you are borrowing and paying back in exact numbers. The interest on it is something that you’re paying extra, which is what will be deducted from your ledger when it’s time to pay your tax.

What is Considered Deductible from Taxes for your Small Business?

Home Office

Irrespective of whether your business is based out of your own house or elsewhere, that expense is certainly deductible. Since you are investing in setting up, operating and basically working at home, it does include expenses for your business which is why this is a legitimate reason to exclude from your tax.

Health Insurance

If you pay for your own health insurance plans, these are certainly deductible from your taxes. Along with yours, even your spouse’s health insurance expenses can be deducted.

Internet and Phone Bills

Internet services and calling are both vital for almost every business today. Whether you run an IT company and have employees working for long hours on the internet, or you run a bakery where you need access to them very rarely, they are still expenditures and are definitely excluded from your tax payments.

Travel

Travel can be broken down into two parts:

The first is when you travel out of town for a business related matter (which may need proof). This includes transportation costs, lodging costs and meals. Apart from your meals which qualifies only for a 50% deduction, the other two expenses qualify for a full 100%.

The second is travelling within your city for business purposes for which you have to show proper proof, including mileage calculation, fuel consumed, etc.

Interest

If you take a business loan, the interest on it qualifies for deduction. Mostly, purchases made by your credit card will not be deductible unless you show some sort of proof that the transaction was made for a business related reason.

Marketing and Advertisement

This is a huge investment since nowadays everything relies on good marketing and advertising. Investing in marketing is always a great option and one shouldn’t hesitate before investing in the same. These costs are definitely deductible from tax.

Education

If you take a course related to improving your skills related to your business, or encourage your employees to do the same, those costs will be deductible as long as you have proof of the same.

Business Insurance

Expenses incurred in insurance for your business will certainly be excluded from your taxes. This can include fire, car and any other insurance plans that you may have invested in for the benefit of your business.

These are a few examples of the costs that you can avoid when it comes to paying your taxes, since these are what you spend on for your business. A business loan can certainly help you cover these expenses, after which you can work on your deducting the interest from your taxes.

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