qbteachmt
Level 15

Let's review basics: you don't "write off" as expense the Payment amount that is servicing the loan principal balance. Think of this as Expenditure (cash flow) but not Expense. Expense is, for instance, Tires and Fuel = Poof! All used up quickly. Or, your office electricity bill.

Investments in an Asset is not Expensed. The fact that it is paid by getting a loan does not make the Loan Payment principal portion an Expense, even though it is being paid monthly. It is paying down Debt. The Debt was used to acquire an Asset. You treat each of those separately and per the tax regulation that applies.

Let's take just one example. Let's pretend that a small business buys a construction trailer for $2,000 and this qualifies for treatment as expense write off under the de minimis property rule:

"The de minimis safe harbor is simply an administrative convenience that generally allows you to elect to deduct small-dollar expenditures for the acquisition or production of property that otherwise must be capitalized under the general rules."

Let's say they paid $500 down and financed the other $1,500 to be paid monthly over three years.

The Tax write off is $2,000.

The loan interest for business property purchase is Expense.

The remaining amount of the payments (payment minus interest) is not an expense, not a write off, and doesn't even go on the tax return for those three years. It's paying down debt.

The same is true for paying down a credit card balance. A business credit card carrying a balance means you might be able to include the interest in expenses, but fees and the balance payments are paying down debt and not expense. You didn't buy anything for that share of those payments, in other words. It's just debt.

These people with this truck "arrangement" need some legal, insurance and financial guidance. It seems they have some weird handshake arrangement and not a true business agreement. And the person you find to help them should also be able to mentor you.

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