Did you know you can write off the interest of a loan if you’re using it for investing?
…huh. Does that mean that person A can give a loan to person B who invests it, and charge 1000% interest which A pays (but then writes off so it’s no cost to them), and vice versa? So both A and B are getting income (from the interest being charged) and it’s coming out of each other’s taxes?
You can only write off the expense. So the money that goes out of your account. So when you say vice versa, it cancels out to no benefit for A or B. A has money coming in as revenue but money going out as an expense so essentially nothing happened but a waste of energy.
The revenue and expense aren’t for the same thing, though? How would you be able to write anything off if you ever had any revenue at all from any source?
(Or, alternatively, have the interest payments from A to B and B to A be made in alternating tax years.)
It doesn’t matter the source of revenue or the category of expense. They aren’t balanced against each other in any way at tax time, they are all just added up: money out versus money in.
Tax write offs are just expenses the business incurred. Say I make $100 in revenue but I had to buy some paper and pencils that year for $20. I’d have $20 in business expenses to write off against my total revenue for the tax year. So I’d have $80 in taxable revenue for that tax year after the business expense deduction (write off).
Even if you alternative tax years you’re just kicking the can down the road. Businesses actually do this quite frequently. They try to make as many deductions as they can and will even go negative sometimes and all those loses will carry forward into future tax years. Amazon did this for years and years by reinvesting into the business and accumulated massive tax deductions so this is one way “corporations don’t pay any taxes.” Well they took huge losses for years and years and are just catching back up on those losses as deductions in current yearss, they’re not “not paying taxes,” they just had no profit to tax even though they had revenue.
It doesn’t matter the source of revenue or the category of expense. They aren’t balanced against each other in any way at tax time, they are all just added up: money out versus money in.
Hmm. Perhaps there’s something I’m not getting. Is it only loans from pre-approved sources (like banks) which can have their interest written off, or loans from any source (like Jimmy the Nose who lives in the alley)?
The interest paid against a loan would be categorized as an interest expenses on your P&L. That would be captured on your tax filing and would reduce your taxable income by the amount of interest paid out in that tax year. It doesn’t matter who the loan was from for that to happen. You can make a loan from yourself to the business and charge the business a reasonable interest rate or the loan could be from anyone or business.
…huh. Does that mean that person A can give a loan to person B who invests it, and charge 1000% interest which A pays (but then writes off so it’s no cost to them), and vice versa? So both A and B are getting income (from the interest being charged) and it’s coming out of each other’s taxes?
If you get a loan from a bank and the interest part of your payments can be written off if you invest money from loan into investments.
You can only write off the expense. So the money that goes out of your account. So when you say vice versa, it cancels out to no benefit for A or B. A has money coming in as revenue but money going out as an expense so essentially nothing happened but a waste of energy.
The revenue and expense aren’t for the same thing, though? How would you be able to write anything off if you ever had any revenue at all from any source?
(Or, alternatively, have the interest payments from A to B and B to A be made in alternating tax years.)
It doesn’t matter the source of revenue or the category of expense. They aren’t balanced against each other in any way at tax time, they are all just added up: money out versus money in.
Tax write offs are just expenses the business incurred. Say I make $100 in revenue but I had to buy some paper and pencils that year for $20. I’d have $20 in business expenses to write off against my total revenue for the tax year. So I’d have $80 in taxable revenue for that tax year after the business expense deduction (write off).
Even if you alternative tax years you’re just kicking the can down the road. Businesses actually do this quite frequently. They try to make as many deductions as they can and will even go negative sometimes and all those loses will carry forward into future tax years. Amazon did this for years and years by reinvesting into the business and accumulated massive tax deductions so this is one way “corporations don’t pay any taxes.” Well they took huge losses for years and years and are just catching back up on those losses as deductions in current yearss, they’re not “not paying taxes,” they just had no profit to tax even though they had revenue.
Hmm. Perhaps there’s something I’m not getting. Is it only loans from pre-approved sources (like banks) which can have their interest written off, or loans from any source (like Jimmy the Nose who lives in the alley)?
The interest paid against a loan would be categorized as an interest expenses on your P&L. That would be captured on your tax filing and would reduce your taxable income by the amount of interest paid out in that tax year. It doesn’t matter who the loan was from for that to happen. You can make a loan from yourself to the business and charge the business a reasonable interest rate or the loan could be from anyone or business.