Student Loan Tax Benefits for Sole ProprietorsJuly 12, 2021
A small business owner is responsible for all the aspects of their business. One of the many tasks to handle is paying taxes for your self-employment in addition to regular income taxes. The amount you pay for these taxes is a percentage of your income. If you can reduce your income through deductions, then fewer taxes will be owed.
Small business owners with student loans often wonder, are student loans a business expense? Keep reading to understand what you can and cannot deduct from your taxes.
Can Student Loan Payments Be a Business Expense?
Many tax breaks are available to small business owners. If you funded your education with student loans, and your education enabled you to start your business, you may be wondering, can student loan payments be a business expense? Here we will cover some important tax breaks to know as a business owner and how to save on your student loans.
A business expense is defined by the Internal Revenue Service as an ordinary and necessary expense needed to conduct business. An ordinary expense is common for your business type. A necessary expense, while not necessarily indispensable, is one that is helpful for your business.
Some education costs do qualify as business expenses using these definitions, as we’ll explain in more detail below. But can student loan payments be a business expense?
Unfortunately no, a student loan is not seen as a viable business expense. But read on for some tax deductions that you can take advantage of as a business owner.
Tax Breaks Available to Small Business Owners
While a student loan cannot be used for tax deduction purposes in most cases, there are still many other deductions you can take advantage of as a small business owner. Here are some of the most common tax deductions for small business owners:
- Advertising – Expenses related to advertising your business are generally fully deductible. These can include purchasing ad space, having business cards made, paying for a logo design, or launching a website. According to the IRS, your business sponsoring an event can also be deductible if you anticipate future business being gained from the sponsorship. It’s important to note that expenses for lobbying are generally not deductible.
- Home Office – If you work from home, you may deduct some expenses related to your house as business expenses. To claim this deduction, your home office must be exclusively used for business, be regularly used, and be your principal place of business. Some deductible expenses include mortgage interest, insurance, utilities, and repairs.
- Business Use of Vehicle – The use of your vehicle for business may allow some expenses to be deducted as business expenses. If the vehicle is exclusively used for business, all the costs of maintaining and operating the vehicle are deductible. If you sometimes use the car for personal errands, only the business-related portion can be deducted.
- Rent Expense – Rent paid for a place of business or equipment for the company can be deducted as a business expense. Keep in mind that rent paid for the place you live and have a home office goes under the home office expenses.
- Telephone and Internet Expenses – If telephone and internet services are vital to your business, these expenses can be deducted. However, if they are for personal and business use, only the portion attributed to the company can be deducted. If there is a dedicated landline in your home exclusively for the business, the full amount of that cost is a deductible business expense.
- Salaries for Employees – Employee salaries can be deducted as a business expense if they are ordinary and necessary and if the amount paid is reasonable for services performed by the employee.
- Education – Are student loans a business expense? Educational expenses related to your business can be deductible, but you must show that the education helps maintain or improve skills related to your business or that the education is required by law.
- Legal and Professional Fees – Fees paid for lawyers and accountants related to operating your business are tax-deductible. Any portion of fees for personal work is not deductible.
- Student loan interest – Interest paid on qualifying student loans up to a certain amount, currently $2,500, may be deducted if specific income requirements are met.
One important thing to keep in mind for any deduction is to keep organized records of your business expenses. Come tax time, it will be easier to take full advantage of all the applicable deductions. Since these deductions reduce your taxable income, the savings can add up.
How to Save Money on Student Loans
Although a student loan will not offer a business tax break, there is still a way to save money on student loans. Student loan refinancing is a wise financial move in many circumstances. By refinancing, you may:
- Reduce the interest rate on your loan
- Combine multiple loans into one
- Reduce your monthly payment
- Save thousands of dollars in interest costs
For example, a borrower with $60,000 in student loan debt and a 7% interest rate may see savings of up to $126 per month and over $22,500 in interest costs over the life of the loan by refinancing. With ELFI, you can see your potential savings by prequalifying online in minutes.*
So are student loans a business expense? Generally, no, unless the expense is required by law or you are able to show that it is necessary to maintain or improve your business. Refinancing student loans is another excellent way to save money on your student loans.