You used a personal loan for business expenses
When it comes to borrowing money, it’s always a good idea to understand the tax implications of a loan or credit line, including personal loans.
For example, with mortgages, the interest paid may be deductible if you fit the IRS rules for that deduction. Or, when credit card debt is written off, the amount is considered taxable income.
The good news here is that there are some instances when personal loans are tax deductible, so it’s important to know the ins and outs before you file your tax return.
If you’re thinking about applying for or already have a personal loan, learn everything about how it is relevant when it comes to filing your taxes.
Are Personal Loans Considered Taxable Income?
Your income taxes are called income taxes for a reason: you’re being taxed on your income, or wages you’ve earned throughout the year.
Your job salary or W-9 earnings are perfect examples of income that you’re taxed on. Anything that counts as income must be taxed (except for certain cases where it may be tax deductible, like nonprofit earnings).
With that logic, wouldn’t a loan be considered income? A personal loan would seem to fit that bill because it’s a form of funding granted to you to spend on yourself (on a vacation, a big purchase, consolidating high-interest debt, etc.).
Not so. A personal loan isn’t considered income for the same reason it’s called a loan: The money isn’t yours. Therefore, personal loans are not considered taxable income.
It’s money that’s borrowed and meant to be paid back to the lender, so it doesn’t fall under the definition of income, and thus, can’t usually be considered for an income tax deduction.
However, the operative word here is usually. Continue reading “You used a personal loan for business expenses”