17 Feb Business Loan Tax Deductions

Business Loan Tax Deductions

2020 Tax Updates

Business lending instruments do come with tax benefits. Unsecured Small Business Loan, Unsecured Business Credit Line, Term Loans, SBA Products, among others, all carry a tax write-off benefit. The IRS business loan interest deduction lets you write off the interest you paid on a business loan product. You can deduct the amount you paid in interest from your tax liability, which reduces the amount you owe in taxes. When reporting to the IRS, it is critical to make sure you can show that the funds were for business purposes and not personal.

With this benefit, borrowing money becomes a cheaper option. Since you can write-off the interest expense and lower your tax liability, the borrowed funds are less expensive than the interest rate they come with. This is a significant factor to consider when acquiring capital for your business. If you can generate a profit by taking a loan for working capital, or supply-demand, increase demand, expand, or leverage opportunities, borrowing money and utilizing the interest tax deduction given makes a lot of sense.

Small Business Loans can be useful tools for creating cash flow, buying equipment, maintaining supplies, taking advantage of growth opportunities, and more. When you are paying a business loan off, it is essential to know that you can deduct this interest from your taxes. This lowers the cost of borrowing capital. It is imperative to look at these expenses when working with your accountant. Planning can also help you and make some fees turn into less of an actual cost than they are.

 

15 Commonly Reported Business Expenses-

 

• Interest and Depreciation
• Fees, Dues, and Subscriptions
• Advertising, Marketing, and Promotions
• Labor
• Benefits, Continuing Education, or Training
• Insurance
• Office Equipment and Supplies
• Rent and Utilities ( Phone, Cable, Internet, etc. )
• Vehicle Expense ( Business use of your Car/Other )
• Home Office
• Business Credit Card Interest
• Healthcare Tax Credit
• Accounting Fees and Tax Preparation Fees
• Employee Gits
• Travel Expense

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2020 Business Tax Need to Knows-

Numerous changes have been made to tax-related limits in regards to businesses in 2020. These limits and variations are most commonly due to inflation. US Fund Source has researched what we believe to be the essential items to you and your business.

Businesses are responsible for payroll taxes, unemployment taxes, and all other kinds of fees! The Tax Cuts and Jobs Act went into effect in 2019 and left the IRS to expect businesses to comply with these new rules and regulations.

Small business tax rates for C corporations in 2020 are 21%, however S corporations and sole proprietors are not taxed at the corporate level and are subject to personal income tax rates. It is essential to know that your tax rate can vary depending on your business entity type, industry, state, and more!

Deductions

• Section 179 expensing:
  -Limit: $1.04 million (Up .02MM from $1.02 million)
  -Phaseout: $2.59 million (Up .04MM from $2.55 million)
• Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at:
  *Married filing jointly: $326,600 (Up $5,200.00 from $321,400)
  -Married filing separately: $163,300 (Up $2,575 from $160,725)
  -Other filers: $163,300 (Up $2,600 from $160,700)

 

Employee benefits

• Qualified transportation fringe-benefits employee income exclusion: $270 per month (Up $5 from $265 in 2019)
• Health Savings Account Contributions:
  -Individual coverage: $3,550 (Up $50 from $3,500)
  -Family coverage: $7,100 (Up $100 from $7,000)
  -Catch-up contribution: $1,000 (No changes)
• Flexible Spending Account contributions:
  -Health care: $2,750 No changes)
  -Dependent care: $5,000 (No changes)

 

Retirement plans

• Employee contributions to 401(k) plans: $19,500 (Up $500 from $19,000 in 2019)
• Catch-up contributions to 401(k) plans: $6,500 (Up $500 from $6,000)
• Employee contributions to SIMPLEs: $13,500 (Up $500 from $13,000)
• Catch-up contributions to SIMPLEs: $3,000 (No changes)
• Combined employer/employee contributions to defined contribution plans (not including catch-ups): $57,000 (Up $1,000 from $56,000)
• Maximum compensation used to determine contributions: $285,000 (Up $5,000 from $280,000)
• Annual benefit for defined benefit plans: $230,000 (Up $5,000 from $225,000)
• Compensation defining a highly compensated employee: $130,000 (Up $5,000 from $125,000)
• Compensation defining a “key” employee: $185,000 (Up $5,000 from $180,000)

 

Social Security Tax

• In 2019 12.4% on wages were taxed (6.2% Employer and 6.2% Employee)
• The amount of employees’ earnings that are subject to Social Security tax is capped for 2020 at $137,700 (up from $132,900 for 2019).

 

Medicare Tax

• 2.9% (1.45% for the employer and 1.45% for the employee) (Employees making over $200,000 per year have additional requirements)

 

Federal Unemployment Tax

• 6.2% on the first $7,000 you paid to each employee. If you’ve paid your state unemployment taxes, you are usually entitled to a tax credit (up to 5.4%)