Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

I purchased an existing business (PSC Corporation) with an

SBA Loan in which I...
I purchased an existing business (PSC Corporation) with an SBA Loan in which I aquired 100% if the corporations stock. I made substantial principle and interest payments out of the business which I have been told is not deductable as a business expense.

I have read many conflicting answers on the subject. While I understand that the payments are not deductable because the stock is considered a personal asset, I can't understand why the business cannot deduct the interest as as an expense? Is my accountant correct?

Thanks,



JF
Show More
Show Less
Ask Your Own Tax Question
Answered in 1 hour by:
6/3/2010
BK-CPA
BK-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 933
Experience: Owner of a CPA firm
Verified

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?

 

Make sense?

 

Thank you for your question.

Ask Your Own Tax 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).

 

 

Ask Your Own Tax Question
Customer reply replied 7 years ago

Hello,

 

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.

 

Thanks,

 

 

 

JF

 

 

 

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.

 

Good luck.

 

Thank you for your question.

 

BK-CPA
BK-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 933
Experience: Owner of a CPA firm
Verified
BK-CPA and 87 other Tax Specialists are ready to help you
Ask your own question now
Ask BK-CPA Your Own Question
BK-CPA
BK-CPA
BK-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 933
933 Satisfied Customers
Experience: Owner of a CPA firm

BK-CPA is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,338 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,980 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
When you make a personal interest only loan to a person, do
When you make a personal interest only loan to a person, do you have to pay Capital Gains, when they pay the loan back in full? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
An S Corporation & its 2 shareholders are selling the assets
An S Corporation & its 2 shareholders are selling the assets of the Corporation. The Corporation provides corporate credit card processing services and its primary assets are the contracts with its cu… read more
Carter McBride
Carter McBride
LLM
239 satisfied customers
As per the new tax law, the property tax deductions of 10000
As per the new tax law, the property tax deductions of 10000 is it per property or per tax payer per property?If both wife and husband file together can they claim 20000 towards one property or just 1… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Interested in information about new tax laws and their
Interested in information about new tax laws and their effect on S Corporations … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Under the new Tax Cuts and Jobs Act, does a Schedule C sole
Under the new Tax Cuts and Jobs Act, does a Schedule C sole proprietor qualify for the 20% deduction of qualified business income or is this only available to S Corp shareholders & LLC's?… read more
Patrick Mullis
Patrick Mullis
Masters
17 satisfied customers
Interest deduction for S corp. finance business (factor) I
Interest deduction for S corp. finance business (factor) I borrow from a bank line of credit. … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
The 2018 tax law will allow homeowners to deduct property
The 2018 tax law will allow homeowners to deduct property taxes and either income or sales taxes with a combined limit on these deductions being limited to no more than $10,000. What does this mean? w… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
A law firm (which is a Schedule C filer) has gross income of
A law firm (which is a Schedule C filer) has gross income of 1,000,000 & Net Income 0f 280,000. In the tax reform just passed, there is a 20% deduction for law firms that have income less than 315,000… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,068 satisfied customers
Under the new tax plan, can a Schedule C proprietor still
Under the new tax plan, can a Schedule C proprietor still deduct her health insurance premiums on page 1 of Form 1040 & are there any medical expenses she can still deduct on Schedule A (if they excee… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,068 satisfied customers
On a schedule c who do you put as the proprietor if it is a
on a schedule c who do you put as the proprietor if it is a newspaper route and you are given a 1099-misc … read more
James Daloisio
James Daloisio
Attorney
Doctoral Degree
80 satisfied customers
I haven't filed a personal return since 2011 tax year. In
Hello. I haven't filed a personal return since 2011 tax year. In 2013, I moved overseas, and didn't return till 2016. Can I just file my back taxes, or must I consult with tax attorney first for any i… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
From a tax liability perspective, what are the differences
From a tax liability perspective, what are the differences between filing taxes from a trust versus a personal income tax filing ?… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,068 satisfied customers
Is the interest one pays on a personal loan a tax deduction?
Is the interest one pays on a personal loan a tax deduction? … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,785 satisfied customers
Are you familiar with income tax laws on business and
Are you familiar with income tax laws on business and personal returns? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Dose mean can not deduct state income taxes only or dose it
dose mean can not deduct state income taxes only or dose it includes property taxes too … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I am a personal injury attorney doing a schedule c as we
I am a personal injury attorney doing a schedule c as we speak. . … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Small schedule c business donates fully depreciated
small schedule c business donates fully depreciated furniture to charity. They've been told that the FMV is $1,000. What is the deduction for contributed property? … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
What would the federal and state tax rate percentages be for
What would the federal and state tax rate percentages be for a $7700 IRA early withdrawal in Ohio?… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,785 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x