By topic: Loans

Are Corporate Advances to the Owner Loans, Dividends, or Salary?

If you operate your business as a corporation, make sure to properly handle corporate advances. For the C corporation, getting this wrong can create taxable dividends. For the S corporation, it can create taxable wages.

How to Project If a Rental Property Is a Winner

When does a rental property qualify as a good investment? The answer lies in your specific investment objectives. For instance, if your goal is to achieve an after-tax profit significantly higher than your safe rate of return, a rental property might be a great choice. How can you know this? You can make an informed projection by reading this article and utilizing the calculator provided.

Revitalize Your Understanding: Guide to Bad Debt Loss Deductions

When you make a loan and that loan goes bad, your tax deduction for that lost money could be either a capital loss subject to the dreaded $3,000 cap or an ordinary loss that’s fully deductible. You want to get this right, and this article puts you on the right path.

Using a Reverse Mortgage as a Tax Planning Tool

When you think of the reverse mortgage, you may not think of using it as a tax planning tool. But as you learn in this article, the reverse mortgage can save you a boatload of taxes when used in the right circumstances.

Don’t Miss Out on the Employee Retention Credit

You likely qualify for the employee retention credit. It has the potential to really help you. The credit is up to $5,000 per employee during 2020 and up to $28,000 per employee in 2021. That’s $33,000 per employee. With 10 employees, that could total $330,000.

Good News If Your PPP Loan Is for $50,000 or Less

As you likely know by now, the Paycheck Protection Program (PPP) loan and its forgiveness process have been an ever-changing (and often confusing) ride so far. With the new rules for PPP loans of $50,000 or less, you escape from the most difficult part of the loan forgiveness if you had to consider employees. And you may even obtain more loan forgiveness than you would have otherwise.

Refresher on Tax-Smart College Savings Strategies for Parents

College is expensive. Data for the 2019-2020 academic year indicates that the average cost of tuition, fees, room, and board was $30,500. Tax law has provisions to help you cover the costs, including Coverdell, Section 529 savings, and Section 529 tuition plans. There’s more, of course, as you will learn in this article.

If the SBA Made Six Loan Payments on Your Behalf, Are You Taxed?

The CARES Act requires the SBA to make six months’ worth of payments for non-disaster SBA loans, including 7(a) loans, 504 loans, and microloans. If you have such a loan, do you have to pay tax on these payments? The IRS has said yes in the past, but it could change its mind this time.

No PPP Loans Today, but You Can Still Get $150,000 from the SBA

PPP Cash Infusion: Haven’t Applied? Apply Today—Don’t Wait

Self-employed? Your Payroll Protection Program (PPP) payroll is your 2019 Schedule C net profit. Partnership? Your PPP payroll is the adjusted self-employment income of the partners. S or C corporation owner, your W-2 is your income. Why know this? So you can apply for your PPP cash infusion as we explain in this article.

Four PPP Forgiveness Answers for S Corporation Owner-Employees

Tax law definitions do not apply to much of the Payroll Protection Program, making it new ground for owners of S corporations. Here are answers to four questions of concern to many S corporation owners.

Five Answers to Spending the PPP Money on You and Your Employees

If you report your business income and expenses on Schedule C of your Form 1040, your PPP loan forgiveness is straightforward, as you see in the five answers in this article.

Four Insights into the PPP Loan and Its Forgiveness

In this article, we offer insights into (1) how good faith at the time of the PPP application works; (2) the differences in the PPP, EIDL advance, and EIDL; (3) the possibility of automatic loan forgiveness without applying for it; and (4) the four categories of owner-employees.

Government Clarifies PPP Loan Forgiveness for the Self-Employed

The expression “I’m from the government, and I’m here to help you” is often counted as one of the three great lies. Toss that thinking out the window when you consider the PPP loan forgiveness rules that apply to the self-employed with no employees. For sure, this process is a government help to Schedule C taxpayers who took the time to obtain their PPP cash infusions.

PPP Loan Forgiveness for Partnerships and S and C Corporations

Thanks to new government guidance, we have clarity on how the self-employed and owner-employees treat their PPP loan forgiveness applications. The new PPP rules explain how you identify qualifying PPP compensation for partnerships, corporations, and the self-employed. The new rules also explain when you can apply for forgiveness. Let’s get started.

Three Ways to Maximize Your Investment Interest Deductions

Most of the personal interest you pay in your financial life is non-deductible. One often overlooked exception is interest you pay to buy investment property, such as stocks. We’ll tell you what to look for, when you can deduct this interest, and how to maximize the deductions.

Self-Employed with No Employees? Get Your COVID-19 Cash Now

Don’t overlook the COVID-19 Payroll Protection Program (PPP) if you are self-employed with no employees. For this program, you (as a self-employed taxpayer) count as an employee, and with only yourself, you qualify for the COVID-19 cash.

COVID-19: Tax Benefits for S Corporation Owners

Congress passed many tax benefits for small-business owners due to the COVID-19 pandemic. But if you are an S corporation owner, you likely know that the tax law sometimes treats you, as a more-than-2-percent shareholder, differently from other employees. In this article, we explain how the most common COVID-19 tax provisions impact the S corporation owner specifically.

Q&A: Are PPP Loan Forgiveness Expenses Deductible?

Millions of small-business owners like you are getting PPP loans and looking forward to non-taxable loan forgiveness. But how does this impact your tax deductions for the expense payments you use to qualify for that forgiveness? The IRS just gave us its opinion, as you will find in this article.

COVID-19: New SBA Loans for Small Businesses—Maybe a Great Deal

COVID-19 has hit American businesses hard, to say the least. You may be eligible for up to $10 million to help pay workers and keep your doors open under a brand-new SBA program. And with this program, you may qualify to obtain some loan relief.

Advance Account Shows That Incorporation Is Not for Everyone

To operate successfully as a corporation, you need to be good at paperwork. Also, you may not treat the advance account on the corporate books as your personal slush fund.

Life Insurance Policy Loan: A Tax Nightmare

Do you have an inside buildup of cash value in your life insurance policy? Are you taking loans from the policy or letting the policy ride with premiums being paid from the cash value? If yes, make sure you know the tax consequences of your actions.

TCJA Tax Reform Creates Big Hazard in Loans to Your Corporation

Making loans to your corporation became more hazardous 33 years ago with the Tax Reform Act of 1986. That was pretty awful. But the new Tax Cuts and Jobs Act tax reform made things worse for tax years 2018 through 2025. If you operate your business as a corporation, you need to know how the rules apply when you loan money to your corporation.

Q&A: Did Tax Reform Take Away My Boat Deductions?

The taxpayer in this question-and-answer bought a boat. Tax reform did him considerable damage on two of his tax deductions. Learn what the Tax Cuts and Jobs Act (TCJA) tax reform did to this boat.

Tax Reform Attacks Home Mortgage Interest Deductions

The home mortgage interest deduction rules did not fare well in the recent tax reform. First, a chunk of your home equity mortgage interest is no longer deductible. Second, you now face a new lower ceiling on mortgages that can qualify for the home mortgage interest deduction.

Hoping to Take a Bad Debt Deduction? Don’t Count on It

Do you ever worry that people or businesses that owe you money might not pay up? Do you take some comfort from the idea that if you end up on the short end of the stick, at least you can salvage a tax write-off out of it? Don’t count on it if you haven’t read this article.

Make the Closing Statement Work for You When Buying Rental Property

One of your first tax steps in buying a rental property is to go through each line item in the closing statement and assign it to one of the following three categories: (1) basis, (2) loan acquisition, or (3) operations. With basis, you allocate costs to land, land improvements, buildings (including perhaps building components), and equipment. Loan acquisition falls into either costs of getting the loan or costs to reduce the interest rate. The assignments have a direct impact on how quickly you realize the deductions.

Mortgage Interest on Rental Property—Avoid Traps, Maximize Your Deductions

You don’t automatically get to deduct mortgage interest on a rental property. Lawmakers have set traps. One trap can totally destroy the interest deduction. Another trap makes you wait a long time to realize the tax benefits of the deduction. Make sure you know what the traps are so you can avoid their impact on your bottom line.

Five Steps to Take When Lending Money to Employees

Lending money to an employee can be a great way to help your worker through difficult times and build loyalty to your business. But when you do this, you need to plan for the possibility that your employee is unable or unwilling to repay the loan. In this article, you will discover the sad example of a business owner who suffered the consequences of poor planning. Fortunately for us, his mistakes serve as a guide on preserving good tax treatment for bad loans.

Tax Truth about Home Equity Loans

Your home may be your biggest investment and storehouse of cash. While interest rates remain low on home loans and home equity lines of credit, you may be tempted to pull money out of your home with a loan. Before you act, you need to know 1) how much interest you can deduct, 2) what the limitations are on those deductions, and 3) when you get slammed by the alternative minimum tax (AMT). Read this article and find out how to make sure that your home equity interest produces tax benefits for you.

Big Mistake with Life Insurance Policy

Once you borrow money from your life insurance policy, you need to pay attention and ask some questions. First, are you using the loans for a business purpose? Second, are you repaying the loans? Third, if you’re not repaying the loans, what happens when the loan balance causes the insurance company to terminate your policy? If you know what happens, you’re prepared. But if you don’t know what happens, you’ll be unhappy when you receive your tax surprise.

Buy or Lease a Business Vehicle: Which Costs Less?

Although personal considerations come into play, the choice between buying and leasing a vehicle for your business ultimately boils down to cost. So it’s essential to understand how to compute and compare the costs and to have the right tools to make those computations easy. This article gives you what you need.

How Tax Law Treats the Foreclosure or Short Sale of Your Principal Residence

You likely hate tax-law surprises. Foreclosures, short sales, and mortgage modifications can both reward and punish you, sometimes during the same transaction. You may not have a problem with your home’s value or its mortgage, but you may have a relative, friend, or client who faces this situation. If so, you may want to know how tax law treats the principal residence foreclosure, short sale, or loan modification.

Life Insurance Policy Loan Tax Nightmare

The inside buildup of cash value in your life insurance policy coupled with loans against the policy can create an unexpected taxable outlay on your part.

Best Small-Business Retirement Plans: Part 4, the Solo 401(k) Option

This is part 4 in our series of articles on retirement plans for the one-owner or husband-and-wife-owned business. Here we explain the solo 401(k), which permits the largest deductions of the defined contribution plans. The solo 401(k) has unique advantages when your income fits this profile.

Don’t Use Your Corporation as Your Personal Piggy Bank

Giving money to and taking it from your corporation needs an audit trail and paperwork to ensure proper treatment. If you operate without the formal paperwork and without the proper logging of entries, you can have unexpected and unwelcome experiences with the IRS and the courts.

Tax Tips for Making Business and Personal Loans Correctly

Follow the nine steps in this article to ensure that tax law treats your loan gone bad as a real loan rather than as a fake loan. Real loans give you tax-favored bad-debt deductions when uncollectible. Uncollectible fake loans give you undesirable capital contributions and nondeductible business gifts.

Buyer Defaults on Business Seller’s Take-Back Loan

The business bad debt generates the best bad debt tax breaks, except when the debt is incurred to protect, enhance, or continue your employee relationship (i.e, keep the corporation in business so you have a place to work).

Home Equity Loans Pros and Cons—Learn How to Avoid Tax Pitfalls

Your home equity loan can give you a full, partial, or no deduction for your interest. If you will get zero or a reduced benefit, make the necessary changes to protect your tax benefits.


How Does a Home Equity Loan Work with a Rental Property LLC?

If you are using home equity loan proceeds for your rental property LLC, you need to pay attention to both the legal and tax aspects of that transaction. The legal part is needed for liability protection. The tax part is needed to ensure your tax deductions.

Bad Loan

There are two types of bad debts: business and nonbusiness. Nonbusiness bad debts are deductible in the year the loan is worthless. A business bad debt is deductible either in the year it becomes worthless or to the extent you can prove its decline in value. This is far easier. But, you need to prove your writeoff to get the deduction. We’ll show you how.

Beware of AMT Mortgage Interest Rules

Beware! Learn how the Alternative Minimum Tax (AMT) taxes the mortgage interest deduction that lawmakers granted you under the regular income tax. Ouch!

Use Imputed Interest Rules to Increase Profits on Sales of Property

Do you own an asset whose sale will produce a capital gain to you? Are you going to take back a note for some of the sales proceeds? If so, consider the “imputed interest” rules as a net-worth building opportunity. You can get up to 57 percent reduction in your tax bite, without changing the buyer’s out-of-pocket spending.

Think and Plan Before Loaning Money to Your Corporation

Traps set by a 1986 tax law still haunt taxpayers today. We can help you avoid some “reforms,” like huge taxes on personal-corporate loans. Instead, make an additional contribution to capital.

Zero Interest on Car Loan

There is no such thing as zero interest for tax purposes.

AMT Crushes Bad Debt Deduction

The AMT taxes the deductions you claim on your regular tax return. No, you are not in the Twilight Zone, you are right here in the good ol’ U.S.A. Learn the details of this outrageous act.

Loans to Corporation Denied as Bad Debts

Douglas Bynum lent his corporation money before it went bankrupt. He filed to deduct this bad debt, but did it incorrectly. Learn from his mistakes and know the details to do it right.

Son Pays the Mortgage Interest

Your son may not deduct the interest on the mortgage payments he makes on your behalf. You need to reconsider and restructure this arrangement.


Peanuts for Mortgage Relief

Despite the new law’s press, the Mortgage Forgiveness Debt Relief Act of 2007 only offers relief to a limited number of qualified homes.


Tax Guide for Debtors on Foreclosure of a Home

Tax law treats foreclosure as a sale of your home. If you sell your home, you have a gain or loss. Most gains are taxable. Losses on a foreclosure or other sale of your personal home are not deductible.


Loans to Your Corporation Could Be Hazardous to Your Financial Health

If you are an owner-employee of your corporation, be careful loaning money to your corporation. If it goes under, you might not be able to deduct your bad loans. One solution is to make an additional contribution to capital, but that still doesn’t fully solve the problem.

Extenders Law Adds New Extender for Mortgage Insurance

In the latest installment of gimmicky extenders, lawmakers have created a one-year tax benefit window for deducting mortgage insurance. What are the lawmakers thinking? Presumably, they hope the mortgage insurance deduction will boost the housing market in 2007. If this works, look for an extension to 2008.

One Place Never to Borrow Money

Business owners, do not be tempted to “borrow” payroll taxes to contribute to the company. This is not only illegal (with penalties), but might leave you personally liable for the stolen money.

Home Mortgage Interest Deductions Denied

Interest paid on a life insurance loan to buy a home does not count as deductible mortgage interest.

Problem with In-law Suite

To deduct mortgage interest, (1) you must have title, (2) the mortgage must be in your name, (3) the home must secure the mortgage, and (4) you must make the mortgage payments from your money.

Jack Up Your Profits with Tax Credits

Historic rehab tax credits can put you in Donald Trump’s self-proclaimed favorite spot. Tax credits often exceed the cash you invest in the project making the historic rental or office building a “nothing down” deal for you. Add nonrecourse financing to the package and you have no personal risk. None of your cash in the deal and no personal risk—this is Mr. Trump’s favorite spot. You might do as many Congressional leaders do: Donate your personal home’s historic facade to charity so can realize big tax credits.

New 2006 Standard Mileage Rates

You probably should hate the IRS for the mileage rate. First, the mileage rate creates the illusion that you don’t need a mileage log (wrong!). Second, individuals who start in business think that the mileage rate makes their tax life easy and that it doesn’t make much difference financially (generally, wrong). Third, mileage-rate addicts think that the mileage rate takes care of everything—then they cost themselves money by failing to deduct a loss on the sale of a business vehicle and overlook the business person’s tax deduction for interest on a car loan.

Fake 1099 on Auto Purchase Creates Trouble

The auto dealer sent this customer a bogus 1099 because the customer refused to return to the dealership and redo the “no interest” loan to an interest bearing loan. The dealer made a mistake originally and then wanted the customer to help fix the problem—at the customer’s expense. The customer said, “No.” Later, when the bogus 1099 showing interest income from the no-interest loan showed up in this customer’s mailbox, the customer took this dealership problem to the IRS.

Are Corporate Advances to the Owner Loans or Dividends?

To make sure that the IRS will treat the C corporation’s advances to the employee-owner as tax-favored loans rather than tax-penalized dividends, make sure you can answer “yes” to the seven questions.

Interest on Refinanced Rental

The security for the loan does not determine if the interest is tax deductible or not.

Mortgage Interest

This taxpayer takes out a $4 million mortgage and makes the interest on $1 million of the mortgage deductible as home-mortgage interest and the interest on the remaining $3 million of the mortgage deductible as investment interest.

Life Insurance Loan

Interest paid on a loan used to buy an investment is considered investment interest. Investment interest is deductible to the extent of investment income. The loan used to buy this life insurance is not a loan to buy an investment.