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In the milieu of the USA / IRS,

I was wondering. Say you get a loan from the bank, $20,000, for a few months. This is for your business. You use it to buy some equipment, waiting for a client to pay a bill. You pay it off after three months. Your total fees and interest were $345.67

In fact - is that a business expense - can you deduct the $345.67?


NOTE - I realize some confusion was caused by me in the above. In the US when you get a "loan at the bank" there's a few typical labels: "Auto loan". "HELOC". "Personal loan". "Credit Cards." Above I had mentioned "Personal Loan", meaning that the name of the loan on the bank paperwork was "Personal loan". But TBC in the example it is entirely 100% for business use. (For example to, say, purchase equipment.)

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In a business? Absolutely.

In personal life? No.

What you would be depending on is the "gray area" that exists in a proprietorship or general partnership, where "personal assets" and "business assets" aren't separated by a legal business entity and EIN. You would need to document that this loan was for the purpose of the business, the money was used in furtherance of the business, etc.

(A proprietorship is what happens when you just roll out of bed one day and say "Imma be a business!" and start acting like a business. A proprietorship isn't anything you declare, it's just the name for doing business with a lack of corporate structure.)

If your business has plain separation (typically an LLC, corp., in certain cases LLP or limited partnership) with separate accounting books and a separate EIN, then the loan had better be in the name of the company and under the company's EIN.

  • Hmm, as I say @harper, "You use it to buy some equipment, waiting for a client to pay a bill." It's completely normal for a person to operate as a freelancer - business, but not use an LLC or SCorp. (It goes on "Schedule-C" just the same, right?) "You would need to document that this loan was for the purpose of the business..." I guess that is the answer! – Fattie Apr 16 '18 at 0:47
  • "In personal life? No." Mortgage and student loan interest may be deductible. – ceejayoz Apr 16 '18 at 15:21
  • @ceejayoz true, but lender-recognized mortgages and student loans are beyond the scope of the question. If a taxpayer wanted to smite a random loan as a mortgage or student loan without the consent of the lender, the IRS will probably disallow it and say "Don't like it? Sue us, here's how". As such they should be creating the papertrail in advance to convince a Tax Court judge that the loan meets the legal definition. "How to do that" is a good question but waaaaay beyond the scope... – Harper - Reinstate Monica Apr 16 '18 at 15:52
  • Guys this question is about a loan >made for the business<. As it says, You use it to buy some equipment, waiting for a client to pay a bill. Example, you had to buy some machinery to do the job, or you simply had no money while waiting for invoices to be paid. Actual business loan. – Fattie Apr 16 '18 at 21:45

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