How to Deduct Interest on program C, Line 16

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

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How is How to Deduct Interest on program C, Line 16

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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 industrial office building or a storefront property, and take out a mortgage on that property, the interest cost 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 cost will sacrifice both revenue tax and self-employment tax; any agenda A cost will sacrifice only revenue tax.

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

Other Interest. There are any types of valid non-mortgage enterprise interest. Two of the most coarse are:

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

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

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