Starting Your Business

What are Business Expenses

Business Interest

Interest is the amount charged for the use of borrowed money. You can generally deduct all interest you pay or accrue during the tax year on debts related to your trade or business. To take the deduction, you must have a true obligation to pay a fixed or determinable sum of money.

No deduction is allowed for interest paid or accrued on personal loans. If a loan is part business and part personal, you must divide the interest between the personal part and the business part.

Interest you can deduct. You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your trade or business. Interest relates to your trade or business if you use the proceeds of the loan for a trade or business expense. It does not matter what type of property secures the loan. You can deduct interest on a debt only if you meet all the following requirements.

• You are legally liable for that debt.
• Both you and the lender intend that the debt be repaid.
• You and the lender have a true debtor-creditor relationship.

Interest you cannot deduct. Certain interest payments cannot be deducted. In addition, certain other expenses that may seem to be interest are not, and you cannot deduct them as interest.

You cannot currently deduct interest that must be capitalized, and you generally cannot deduct personal interest.

For information on when to deduct interest, see Publication 535.

Important References:

Publication 535                   Business Expenses
Schedule C (Form 1040)     Profit or Loss from Business
Instructions for Schedule C (Form 1040)