The Truth About Tax Deductible Business Loans
In comparison to household taxes, business taxes are just as delicate to navigate. Especially after taking out a business loan, fulfilling your tax obligations isn’t as simple as you’d expect. Loans can sufficiently cover business expenses or even keep your operations from failing. Depending on your company’s financial health, the tax implications may vary—let’s find out how.
Can You Write Off a Business Loan?
Typically, business expenses are tax-deductible—but how about when you borrow money? According to ATO, it’s entirely possible to write off expenses that directly contribute to earning your assessable income. However, even small business loans aren’t always directly impactful of income-generating activities.
As such, you can write off interest, but the principal remains a business liability. Keep in mind that any funds you funnel into personal expenses are not deductible—even if you course them through your business.
Are Business Loans Taxable Income?
The loan you take out won’t fall under taxable income, as you’ll eventually repay your external financing. There are a few exceptions, but business loans from a bank or online lender aren’t typically part of the statistic.
Under one exception, forgivable debt can count as taxable income, even when you didn’t pay any taxes upon receiving the funds.
Are Loan Repayments a Business Expense?
If you’re taking out a business loan, it’s most likely to cover business expenses. Perhaps you’re tackling an unmissable opportunity you can’t afford on your own or are getting through a slow sale season. Whatever the case, does this mean your loan repayment counts as a business expense?
The short answer is: not really. Your loan principal is a liability, not an expense, and you wouldn’t direct your loan towards tax purposes. On the other hand, the interest you pay does count as a business expense, which means you’ll have some wiggle room there.
What You Can Write Off
Not every business owner is familiar with tax-deductible expenses. You can usually enjoy savings from:
- Interest on business credit cards
- Employee gifts
- Tax preparation fees
- Employee education
- Healthcare tax credits
- Professional fees
Depending on your industry, you may be entitled to other tax deductions. Work-from-home business owners can deduct rent and utility bills from their home office, given that they dedicate the space to business purposes and employee or client meetings.
Similarly, if you’re using your personal vehicle for business purposes, you can calculate tax deductions on a per-kilometre basis. Advertising and public relations merchandise are another deductible spend, along with research and select employee events.
Knowing how taxes work concerning business loans can help you determine whether taking one out makes sense for your company. Because interest is the most significant loan-related expense you’ll incur, familiarising yourself with what you can deduct can go a long way in savings.
At Business Loan Experts, we can hook you up with the right business loan in your sector and help keep an eye on your finances. Through us, you can review essential information regarding various lending companies to determine which loan product best satisfies your operational needs. Contact our team in Melbourne and Sydney today!