Understanding and interpreting business tax law is a daunting task. For example, is a business loan considered business income?
First of all, what is “business income”? Basically if the income has anything to do with your business, whether it is on a full-time, part-time, or occasional basis, it is business income. Most business loans are not considered business income. One notable exception is a situation in which you negotiate with a creditor or a lender to reduce your debt. If any debt is forgiven, you will owe taxes on the amount.
Business loans can offer substantial tax benefits. Read more about bank loans for small businesses. The interest you pay on your loan is considered a business expense, and you can deduct it from your taxes. In order to take advantage of a tax deduction, the assets and expenditures financed must be necessary to operating the business.
Making sense of tax law is challenging, and some people may make blunders that end up costing them dearly. Do not be tempted to hide payments for future services as loans; a payment in exchange for goods or services (including a salary advance) is not a loan. If you have any doubts or questions about how to record business income, confer with your tax advisor.