How to Deduct Interest on agenda C, Line 16

Can I Deduct Property Taxes - How to Deduct Interest on agenda C, Line 16

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Interest expense is a deductible expense for Sole Proprietors on agenda C, Line 16. The purpose of this description is to make sure you take benefit of the many types of interest expense you are likely to incur in your small business.

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Can I Deduct Property Taxes

Line 16 of agenda C offers two main categories of interest expense: Mortgage interest (Line 16a) and Other (Line 16b). Let's take a closer look at each of these categories.

Mortgage Interest. If you purchase real estate for use in your business, such as a commercial office building or a storefront property, and take out a mortgage on that property, the interest expense on that loan is 100% deductible. Be sure to deduct this interest here (on agenda C) rather than as a personal itemized deduction (on agenda A). The reason: interest deducted on agenda C is worth more in tax savings than interest deducted on agenda A, because any agenda C expense will sell out both wage tax and self-employment tax; any agenda A expense will sell out only wage tax.

Another word of caution: If you are taking the Home Office deduction, be sure to deduct the company measure of your residential mortgage interest on Form 8829 rather than here on agenda C. The company measure of that interest will flow from Form 8829 to your agenda C, Line 30.

Other Interest. There are some types of valid non-mortgage company interest. Two of the most common are:

1. Auto loan interest, to the extent the vehicle was used for business. So, if your vehicle is used 100% for business, than 100% of the auto loan interest is deductible. Most Sole Proprietors drive the same car for both company and personal use, so you will have to apply the company use ration (business miles divided by total miles) to the auto loan interest to conclude the deductible amount. Helpful tip: you get to deduct auto loan interest regardless of whether you use the Actual expense method or the Mileage Rate Method.

2. Credit card interest, again, to the extent that the items purchased with that Credit card are used for your business. If you have a Credit card that is used exclusively for company items, then any interest or finance charges are fully deductible. But if you are using that Credit card for both personal and company items, you'll have to do an budget based on the purchase price of the discrete items expensed to that account. Helpful tip: pick one Credit card that you use exclusively for company purchases and you can avoid dealing with the budget calculation.

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