Forums: Discussions for entrepreneurs and small business.

I am planning on taking out a loan most likely personal and do a 50-50 split between my business and personal use.

My question is do I have to report the loan on my taxes as income?  I don`t remember having to do that before for a small loan I took out almost ten years ago.

The portion that is used for business as working capital how I do I include that in my accounting system? Can 50% of the payment be deductible since it is used for the business?

Thanks for the advice

Lisa ~

A loan is not considered income.  Create a long- or short-term liability account and use the principal for your starting balance.   

When you make your payments, the principal goes again the liability account and the interest portion of the payment goes to Interest Expense.

The only thing you report on your taxes is the Interest Expense.

Linda

In addition to the other replies, I`d add that for the 50-50 biz/personal split, just put the 50% business portion of the loan in your business books, and each month book one-half of the principal and interest (as specified in another reply to your post) for the business.

Alternatively, you could put 100% of the loan into the business, make 100% of the payments from the biz, and then take out the personal side of things as a draw or distribution. Your tax person allowing, that would make it 100% deductible.

Taking out two loans is harder and more expensive than taking out one.

Lisa, assuming the loan isn`t specifically (in banker`s eye) 100% for working capital, I`d take it out as a biz loan, then take out a modest monthly draw.

Your website suggests you`re an established company with some marquee clients. I`d make sure the personal financial side of things is covered adequately, because PR agencies usually have strong cash flow as long as you`re handling A/R well. So maybe there`s a cash flow issue in the biz that needs to be addressed and maybe a loan isn`t necessary - but there`s a problem somewhere else in the system.

The business is relatively new in this formation.  There are three of us who use to consultant separately and we go to together to form this company in order to go after bigger longer term clients instead of project work we did previously.

I want to thank everyone for your advice and words of wisdom it is very much appreciated.

We`ve purchased supplies from a business that won`t tell us its EIN.  The owner thinks that if we don`t have his EIN, we can`t report his income to the IRS and he can then dodge taxes.  Is there a way to track down the EIN of a supplier who refuses to provide it?  Is there a way to look up the supplier`s EIN online?

Thanks, but the Secretary of State says that businesses in Texas can pay state taxes without having an EIN, even if they`re incorporated, and so Texas does not require any businesses to have an EIN.  The State itself issues its own taxpayer number, which is different from the EIN even if the business has an EIN.  In fact, the Secretary of State`s office has never been informed of our EIN, and doesn`t care to be; there are no forms that request or require it.  It seems that, for Texas businesses, only the IRS cares about EINs.  Even businesses that have EINs do not have to disclose them as public information in Texas. 

We`ve been told that we do need the send a 1099, due to the nature and size of the payments we`ve made.