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Interest deduction for S corp. finance business (factor) I…

Interest deduction for S...

Interest deduction for S corp. finance business (factor) I borrow from a bank line of credit.

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

Are finance companies allowed to deduct interest expenses paid to banks to support lending to small companies?

Accountant's Assistant: Is there anything else the Accountant should be aware of?

I am a sub chapter S corp. I borrow substantially from a bank through a line of credit to fund my clients in support of a factoring arrangement with my clients.

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Answered in 2 minutes by:
12/23/2017
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,200
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi My name's Lane

I hold a law degree, with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice on three continents since 1986.

Bear with me just a moment and I’ll provide my initial response and then we can go from there if you have further questions on this

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Absolutely. Interest cost in your normal course of business, is deductible under IRC section 162.

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Any borrowing to facilitate business is an ordinary business expense.

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This has been well settled in tax law since . Commissioner v. Tellier, 383 U.S. 687 (1966) references the landmark case, Welch v. Helvering in its support of the meaning of "the term 'necessary' as imposing only the minimal requirement that the expense be 'appropriate and helpful' for 'the development of the [taxpayer's] business'".

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You'll see this again here https://www.irs.gov/businesses/small-businesses-self-employed/deducting-business-expenses from IRS.

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"To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary."

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You'll enter this on line 13 "interest" of form 1120-S: https://www.irs.gov/pub/irs-pdf/f1120s.pdf

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Let me know if you have questions

...

Lane

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,200
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Lane and 87 other Tax Specialists are ready to help you
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Customer reply replied 4 months ago
Your answer is correct for previous tax laws, but what about how interest is treated under the new tax law?
Customer reply replied 4 months ago
I am an S corp. My Payroll is about $5,000,000 per year. What is my tax rate?
Phone call session started

Yep, The Act limits corporations' ability to deduct interest excpense to 30 percent of income. For the first four years, income is EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) but reverts to earnings before interest and taxes after the first four years.

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And no, the adjusted current earnings adjustment, abolished for C corporations under the AMT, never applied to S-Corps to S corporations or their shareholders anyway.

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Send me the email, and I can do some homework on the other questions.

...

Lane

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Lane
Lane
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