I started my business with a bank loan of 17,700 which I am paying payment and interest on from the business. Where do I list this loan and payments, I am using Home/Bus

[Rick19744 · Accepted solution]

I am going to jump in here and only address the loan component.

From a business perspective there are two components to your financials; the income statement (Schedule C) and also a balance sheet.  Many small businesses do not always maintain a balance sheet, but I would recommend every business have one.

You can think of the loan in a couple of different ways:

• When you contribute in $$ you (the business) will use those $$ to purchase items.  Those items that you purchase are then written off as expenses or possible you purchase an asset that will then be depreciated.  If you would take money out of the company to pay yourself back, your wouldn't expense that repayment.
• Borrowing money from a bank is the same way.  The business uses the $$ from the bank to purchase something and that is what gets expenses.  If you expensed the repayment you would be taking a deduction twice.

From an accounting perspective you have the following;

• You borrow the money from the bank.  Here you debit cash and credit loan payable.  This is all balance sheet related.
• Now when you purchase something with those $$ you debit an expense account and credit cash. 
• Then you repay the loan you debit the loan payable (for the principal portion) and credit cash.
• The first and third bullet essentially are a wash and the impact on the tax return is the second bullet.
• The last component is paying the interest on the loan.  Here you would debit interest expense and credit cash.

Hope this provides a better understanding of the loan issue.

[mkgbobk]

Thank you for your comment. I have another issue that I need an answer to. Last year's Michigan State return in Column 24 listed a tax liability of $3311 and in column 29 listed that I paid in $3479. so I received a $168 refund. This year turbo tax is listing the $3311 was a due tax and is reporting an underpayment fee of $106. How can I proceed with my Turbo Tax filing without this penalty?  How can there be taxes due when I got a refund?. Thanks for your help.

[MichaelL1]

The loan payments themselves are not deductible.

The interest paid on the loan is deductible and should be listed as an interest expenses for the business. 

[mkgbobk]

The loan is against the business so the payment have to be listed as an expense somewhere?

[MichaelL1]

" loans used for business purposes are tax deductible--however, only the interest can be written off."  Some links to look at are:  <a rel="nofollow" target="_blank" href="http://smallbusiness.chron.com/deduct-money-loaned-start-business-15001.html">http://smallbusiness.c...>
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/3539394-payments-on-a-business-loan-deductible">https://ttlc.intui...>
The IRS does not let individuals write off interest from personal credit cards or loans. ... They have deemed business interest to be a legitimate business expense, and that is tax deductible.

[VolvoGirl]

You write off the principal part of the loan by entering the actual expenses you paid with it.  You can only deduct your actual out of pocket expenses.

[mkgbobk]

I understand your answer twice that I can write off the interest on the loan. My question is do I list the payments to the loan as a business expense? Where? Thank you

[VolvoGirl]

Just the interest.  Not the principal part.  Are you asking where to enter the interest?

[VolvoGirl]

Go to Business tab- then Continue
Choose Jump to Full List -or I'll choose what I work on

Then…..
Business Income and Expenses - Click the Start or Update button

Then click EDIT by the business name and the next screen should be a list of  topics,
Business Profile, Income, Inventory/Cost of Goods Sold, Expenses, Assets, and Final Details last.

Under Business Expenses, Click Start or Update by Other common business expenses
You should see the list of expenses and amounts you entered.
Then click the start or update button by the expense you want to add or edit.

Interest Payments is the 7th item under Expenses - Click the Start or Update button

[mkgbobk]

The loan was necessary to start/run the business. As such, it has to be a business expense that has to be paid back. Why are you saying it can't be an expense. Who is going to pay it, me the employee?

[VolvoGirl]

You can deduct the interest.  

You can not deduct paying back the loan.  You deduct it by only deducting the actual expenses you used it for.  The things you bought.  Or that would be expensing it twice.  Exactly what did you use the loan for?  Did you buy things with it?

 Is it your business or are you just an employee?

[VolvoGirl]

Oh, it might depend on what kind of business entity you set up.  Are you doing a separate business return like a 1065 Partnership or LLC?  Or a 1120 S or C corp?  Those work differently than a sole proprietor self employed schedule C business.

[mkgbobk]

I own the business. The loan was for the company that is teaching me how to do the business. It did not buy a product that can be resold or that is expensed anywhere else.

[VolvoGirl]

What you paid to the company is an expense.  Doesn't matter how you paid it like credit card, cash, loan.  You can expense the whole amount.  You are expensing the payment not the loan.  Just like anything else you buy for the business like paper and pens.  I'm not sure where to put education.  Maybe under Commissions and Fee?  If you don't see a category that fits you can always enter it under Other Expenses, line 27a.

Here is a blank schedule C
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/f1040sc.pdf">https://www.irs.gov/pub/irs-pdf/f1040sc.pdf</a>