What expense category is a loan on Schedule C?

Figuring out where loans fit on your Schedule C can be a bit confusing. Knowing how to categorize them properly can help you stay compliant and make the most of your deductions.

Classifying loan expenses

When dealing with loans on Schedule C, it's important to separate the principal from the interest:

• Principal repayments: These payments reduce your loan balance but aren't deductible expenses.
• Interest payments: Interest paid on business loans is deductible and should be reported.

Examples of loan expenses

Here are some common loan expenses you might encounter:

• Business loan interest: Interest on loans for equipment, inventory, or working capital.
• Start-up loan interest: Interest on loans used for initial costs like office space or initial inventory.
• Real estate loan interest: Interest on loans for purchasing or improving business property.

For example, if you paid $2,000 in interest on a business loan this year, that amount is deductible.

Tax implications of loan expenses

Understanding how loan expenses affect your taxes can help you maximize deductions:

• Deductible interest:
  • Report mortgage interest on Line 16a of Schedule C.
  • Report other business loan interest on Line 16b.
• Non-deductible principal: Principal repayments aren't deductible but should be tracked separately.

Always keep detailed records separating interest from principal to ensure accurate reporting.

Let Ramp automate your expense process

Handling loan expenses doesn't have to be a hassle. Ramp can automate the categorization and tracking of your loan interest expenses, making it easier for you to manage your finances. Spend less time worrying about paperwork and more time focusing on your business.