Hey Abe, I’m thinking about taking out a loan to buy a truck for my business. How does this affect my taxes?
Great question! Taking out a business loan can provide the cash needed to purchase equipment, cover operating expenses, or grow your business. Receiving loan proceeds usually does not create taxable income. Likewise, payments made toward the loan principal are not tax-deductible. However, the interest on these loan payments is generally tax-deductible.
Business expenses paid with loan proceeds are generally tax-deductible. Ordinary and necessary business expenses, such as truck fuel, supplies, and safety gear qualify as current business deductions. Larger equipment purchases, such as trucks, machinery, or other equipment, may need to be recorded as assets and deducted over time through depreciation. Bonus depreciation may be available depending on the type of asset. This can allow you to deduct the entire purchase price of the asset in the first year it’s placed into service.
Keeping the loan agreement, payment statements, receipts, and records showing how the funds were used will help ensure you’re claiming ordinary and necessary business expenses. Because every loan and business situation is different, owners should review the tax treatment with a qualified tax professional.
