With April 15 th just around the corner, many small business owners are working on their tax returns right now. This includes trying to find every deduction and credit to help reduce the bill.
At Kabbage, we get asked a lot about taxes. Specifically, folks want to know whether a small business loan can be written off. This is an interesting and important question that we thought was worth exploring here on the Kabbage Blog.
Like with almost everything to do with taxes, there is no one simple answer. While you can’t simply write off a small business loan, what you purchase with the loan may be a write off. Additionally, the interest you pay on a loan can often be deducted, too. So, let’s take a closer look.
What can small businesses write off on their taxes?
Business expenses that you purchase with a small business loan can be written off on your taxes. These include the following:
Office supplies – Copy paper, paper clips, ink cartridges for your printer, envelopes, pens, etc.
Automobile expenses – Your vehicle may be a deduction as a capital expense. The cost of fuel or mileage, insurance, and repairs and upkeep are also deductions. The amount you can write off will depend on the percentage of your car’s use is dedicated to work. If 50% of your mileage is accumulated through work-related travel then you can write off half your expenses for gas, car insurance, etc.
Advertising – Expenses related to promoting your
business such as print advertising, business cards, hosting for your business website, direct mail, and more.
Legal and professional fees – Have you spent money from a loan on consultants, accountants. or attorneys? These expenses are deductible for the year in which you incur them.
Office Furniture and Equipment – On your return these expenses can be deducted in the year that they’re purchased or depreciated.
Business Entertainment and Travel – If you entertain clients or prospective clients, you can deduct 50 percent of the tab. Airfare, lodging, car rental, mileage, taxis, parking, dry cleaning and other expenses related to traveling for a business purpose are also deductible.
What about Interest?
The IRS does not let individuals write off interest from personal credit cards or loans. However, it’s a different story for businesses. They have deemed business interest to be a legitimate business expense, and that is tax deductible.
If you have paid interest for business credit cards or a business loan of any kind, you can deduct this amount on your taxes. Yes, you will want to have the back up to prove that the money was spent on business activities just in case you are audited.
In short, it definitely pays to take the time to find every deduction that applies to your specific situation. If you have expenses or have paid interest on a business loan or credit card. take advantage of the tax savings. It’s the IRS’s way of acknowledging your hard work as a small business owner!