Business loans are powerful tools that allow companies to improve their services, acquire better equipment, and sustain through slow periods. Simply put, a loan can be used to cover a large variety of expenses.
Making sure all your expenses are accounted for during the tax season is crucial to compliance and retaining cash in your business. This article will focus on working capital and how you can benefit from interest tax deductions.
At AFG, we use a short-term loan structure, which allows you to get the most benefit when you file your taxes!
How to make sure you are eligible for a tax write-off?
Before understanding deductions, you should make sure that your type of loan and use of the money would qualify for a write-off. Here are the general requirements:
- You have to borrow from a legitimate business lender
Your loan has to come from a bank or a business lender. It may sound self-evident, but many startup owners tend to borrow from family and friends. Since they are not an accredited lender, such loan would not be eligible for a tax write-off.
As a general rule, the IRS is very suspicious of any private party funding. That is because personal agreements may not be defined as “loans” in the legal sense of that word. Therefore, only a loan that has a clear payment schedule and makes you legally liable to repay will qualify.
- You must spend the money
When you take out a short-term working capital loan, the requested amount of money is wired to your account. Most intent to use it, yet you have the option to keep in your bank account until you pay it back.
In order to be eligible for the deduction, you have to spend the money.
Doing the math
As mentioned above, a working capital loan is a short-term product. That means that you will likely expend all the interest in the same year or split between two years.
Different working capital products use either a standard annual percentage rate (APR) or a factor rate, depending on terms of your contract. Therefore, the amount of interest paid will be different for every situation.
Alliance Funding Group is compliant with the tax laws, and all our products allow you to benefit from tax write-offs every single year.
With our Unsecured Working Capital Program, it is easy to know your exact interest amount from the get-go! We use simple factors and provide you with a fixed cost of capital so that you can make an educated business decision.
Note: This article should not be taken as tax advice. AFG recommends that you consult your accountant or tax advisor.