Are Interest on Payday Loans Or Cash Advance Loans tax Deductible

Pay day loans which are also referred to as check advance loans, post dated check loans or deferred deposit loans are a common option for those needing quick cash.

Individual Tax Return

Although almost all interest income are subject to tax most interest payments are not tax deductible. Unlike students loans or mortgage loans, the interest on Payday loans or cash advance loan falls in the category of loans that are not deductible.

Despite an interest rate between 10 and 25 percent, sometimes better, they do not qualify for tax deduction. U.S. tax payers in need of  quick, convenient cash can used payday loan enterprise to get the cash they need to cover up immediate bills.

However, it is advisable that those seeking a quick loan should ensure that they are dealing with a reputable payday loan company. The lender should indicate the amount of interest and the terms of the loan. Borrowers should shop around for the lowest interest rate possible.

These loans are not meant to be long term loans and should be paid of quickly. If you are anticipating a tax refund, the loan should be paid off immediately after receipt of a refund to avoid extra interest on the loan.

Business Tax Return

All expenses for the express purpose of maintaining a business are tax deductible, but you will have to prove to the IRS that these expense were used for tax purposes.

The interest on a payday loan, if the loan was used to finance the business, is tax deductible.

However, ( a big however) the business owner will have to show the IRS how he / she used that payday loan for business purposes. Owing to the fact that most business owners have a credit union or bank account for their business, using a payday loan to temporarily fund a business is not that frequent, although not uncommon.

The wise tax payer should consult a tax advisor on whether interest rates on particular loans are deductible.

 

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