What qualifies?
- Bank loan interest
- SBA loan interest
- Business line of credit interest
- Equipment financing interest
- Business credit card interest
- Merchant cash advance fees (may be treated as interest)
- Vehicle loan interest (business-use percentage)
Personal loan interest is not deductible, even if you use some of the money for business. Keep business and personal borrowing separate.
Mixed-use loans
If you take a personal loan and use part of it for business, only the interest on the business portion is deductible. You'll need to track the allocation. This is another reason to keep a dedicated business credit card or line of credit.
Example
You have a $50,000 SBA loan at 7% interest. Annual interest: $3,500.
You also carry a $5,000 balance on your business credit card at 22%. Annual interest: ~$1,100.
Total deductible interest: $4,600
IRS Reference
See IRS Publication 535 (Business Expenses), Chapter 4. Report on Schedule C, Line 16a (Interest on business debt) and Line 16b (Mortgage interest).
See IRS Publication 535 (Business Expenses), Chapter 4. Report on Schedule C, Line 16a (Interest on business debt) and Line 16b (Mortgage interest).
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