How To Deduct Personal Debt!
Is your coaching business hitting new levels of success, but you still have personal credit card debt you need to tackle?
The MAIN problem with most personal debts...
…the interest is NOT deductible on your taxes!
Is there a way you can convert some non-tax deductible interest on personal debt into a tax deductible business expense?
Yepper!
Let me give you a hypothetical example:
You owe $20,000 in personal credit card debt…you would NOT be allowed to deduct those interest payments.
Your business has NO debts and each month you pay your business credit cards in full.
Your monthly business credit card expenses are typically $2,500...so you pay in-full the $2,500 each month.
Your monthly minimum payment required is $500
So why not consider...only paying the minimum of $500...
...and send the difference ($2,000)...out of the business?
This strategy might seem obvious...but sometimes people forget they can do this.
Here is how it could work if you wanted to use this tax strategy:
Step 1 - transfer the $2,000 to your personal checking account...
(This was be an Owner's Draw or Owner's Distribution. You must always keep your personal banking separate from business banking.)
This will increase your business debt by an extra $2,000/month…while lowering your personal debt by the same amount.
Step 2 - Repeat each month until personal debt is paid off
Step 3 - Personal debt of $20,000 reaches $0.
Step 4 - Business debt is now appx $20,000 (ignoring the potentially different interest rates on the debt)
Step 5 - All the expenses that resulted in that $20,000 of business debt were from your legit business expenses (you just stopped paying it off each month). So now the monthly interest charges are FULLY DEDUCTIBLE by your business!!
Step 6 - Start paying off the business credit card with the $2,000 in this hypothetical example.
IMPORTANT NOTE:
That is an oversimplified example and I purposely left out interest rates.
The difference in personal vs business interest rates are critical to this strategy.
There are many factors to consider before deciding if this is an appropriate strategy for your business.
You should speak to a qualified financial expert to make sure that this is a strategy worth pursuing because differences in interest rates could negate any potential tax savings.
If you are stressing about your finances, we help Fitness Entrepreneurs Save Taxes & Grow Their Money
Please schedule a call if you need help.
Best
Pat
Disclaimer: This is meant to be educational. This is not advice for your specific situation. There are many factors to consider. Please speak to a qualified financial professional and qualified tax professional before making any changes to your personal or business debt and tax strategies.