Purchases with credit cards and loan proceeds

[Adri]

I would appreciate help with the following situation.  Thank you 

 1. Taxpayer (Sole Proprietor, Schedule C) purchased material and supplies with credit cards and with a business loan he is repaying. According to my AFSP teacher material is deductible when purchased even if is with a credit card that has not been repaid....?

     2.      What about the material bought with the business loan? (is not PPP) Can I deduct it in 2024 year when purchased even if the loan has not been fully repaid? 

 3. What about if those purchases were to generate a loss in Schedule C, would they be an acceptable deduction? 

[qbteachmt · Accepted solution]

The purchase is at the time of the expenditure. Using a credit card is the same as taking out micro-loans with every purchase.

The loan is just a funding source. The principal, the same as the credit card balance, is not an expense but debt service paying down the liability.

The interest would be a business expense, assuming the purchases meet the requirement for business interest.

This is why you don't also treat credit card payments or loan principal payments as deductions. They are not expense. They are banking, essentially.

Any legitimate expense for a business is a valid deduction, even if they paid for it with chickens. Creating a loss doesn't depend on how things were purchased. But it can depend on what was purchased.

[Adri]

Thank you very much for the clarity of the explanation!  Now that makes sense and I really appreciate your time.