Is your business liable should you default, or are only you liable (hint: your business being a secured asset does not make it liable when you are the liable one and the business is your asset)? If you sell the business, could the loan even go with it if you wanted it to, or would you have to pay / get the bank to assign the loan?
Thank you for your question.
Are you an employee and active in this company, or is your involvement limited to that of an investment (regardless, your stock purchase is generally an investment).
If you are active in the business, and you can say you needed this loan for your own personal business purposes in order to provide/protect your own employment, then it may become deductible... that is why you can't seem to find a direct answer, because there isn't one.
In general, the first answer is the correct one (stock is an investment to you, and this is investment interest expense, so still deductible, yes, but as investment interest and not business interest).
Thank you for your response. I am liable for the loan which is guaranteed by the Government should the business fail. If I sold the business, the loan would have to be paid by me or re-assigned by the bank. It is not easy to get an SBA loan which in this case for $400,000.
I am active in the business on a full time (and more) basis. It is my job and no one else is qualified to do it. The business makes the principle and interest payments each month. The interest I want to deduct is over $22,000.00 so this is substantial.
My tax liability is over $20,000 which I am of course trying to avoid.
Alternatively, my account said we could amend my personal return treating this as an interest expense however, I don't understand how since the payments came out of the business and I believe there is a limit on this based on your interest earnings but I am not sure.
I have recently read a tax law case where claiming job protection as a reason to deduct loan interest failed but that citation was in 1997.
Can you tell me if my current accountant is correct in all of this, if I should file in the way he has suggested and/or can you direct me to more recent information that helps my situation? Let me know.
Here's what you can do, noting that I must assume your accountant is correct given the fact that your accountant is more privy to your personal facts and circumstances than I:
If your company had a loan on the company books to you, the shareholder, then the company could deduct interest expense against the PSC tax rates. You in turn recognize interest income (ie... ordinary interest income) which can be offset by your investment interest expense on the SBA loan. Talk to your CPA.
I'm not going to say the above is the correct thing to do... If it's a business loan to you, then it should be a business loan (ie... deductible as a business expense). I'm personally upset by the PSC status when, at the same time, your loan is considered money used as an investment in a C-Corp, generally, as I said above, but that doesn't mean my personal feelings weigh over reality and the need to be objective. Also, if you put a loan on the C-Corp books as I hint, why does the C-Corp owe you? Microsoft would not owe you should you borrow money in your name to purchase its stock, so why is it any different if it's your company (ie... think ownership percentage and why this is your personal business and welfare as opposed to The Company's, or Microsoft's.).
The truth is that you invested in a company. You also work for that company. The tax code specifically states that interest on a business loan is different than interest on an investment loan, court case - smort case (which court?... this is not your specific case). Working for a company (employment) is not the same as making a business loan to that same company (investment, business loan if a schedule C... ok... hmmm...), and you're responsible for the loan then it sounds like, not the company, so it's no different than if I borrowed money on a credit card and bought stock...
There is no one easy answer.