Using Line of Credit to pay Tax

[RamonR]

Would using a line of credit to pay tax be a legitimate expense.

I am currently putting money away as I make it in trades but feel it would be better to sink all profits into my mortgage and draw money out of the line of credit when the times comes.

Would I still be able to claim the interest as a deduction.

 

[Sir Osisofliver]

RamonR,

If your tax bill is that large that you can actually have a meaningful amount of interest expense when drawing from a LOC...


Don't be such a cheapskate....go visit a tax lawyer.


Sir O

 

[Trembling Hand]

The interest you pay on outstanding tax is much higher than a mortgage. If you haven't the cash its best to get a loan than not pay the tax man.

 

[RamonR]

Already have a loan, the line of credit.

I was weighing up the benef its of putting 40% of my profits away as I make them, to pay tax bill as opposed to putting it all into my mortagage and drawing on my line of credit when the time comes.

I will pay for proper tax advice later in the year if I continue to trade.
At this stage I have only been trading for two months.

 

[derty]

I don't think your tax bill can be classed as an expense regardless of where you pay it from.

I do have my LOC account linked to commsec and do claim the interest accrued for the monies that I have in the market. I also pay my tax bills out of my LOC and haven't claimed the interest and my accountant has never suggested it as a possible deduction.

 

[Tysonboss1]

Yes you can claim any interest that you incur on a loan that you had to take to pay your tax.

Have you looked into getting a mortgage offset account to store your profit in until tax time,

 

[derty]

Yes you can claim any interest that you incur on a loan that you had to take to pay your tax.

sometimes it's great being wrong, cheers tb, I'll be looking into this for sure.

 

[stargazer]

Hi

Myunderstanding is that it is the purpose of the loan that is what needs to be clearly indicated.

Keep personal and Inv LOCs seperate so it is clear what is for what. If you use the same for both it can be messy.

cheers
SG

 

[whocares]

If you can leave a 'paper trail' showing that you 'borrowed money from your L-of-C, then any interest charged on only that portion of your total debt can be offset against gains, as can the cost of your accountant. If you put cash back into the L-of-C, then it must also be apportioned between debt on house, and the loan for sharetading. Keep very clear records of all transactions and confirm with your accountant this fits your complete circumstance and tax liability.

 

[son of baglimit]

Yes you can claim any interest that you incur on a loan that you had to take to pay your tax.

,

tyson - have you info to confirm this, as i cant see how.

deductions are claimed when you have expenses that helped CREATE INCOME.
paying your tax bill doesnt create income. its a personal expense.

please find a reference and post it here - but i think youll struggle.

 

[Tysonboss1]

tyson - have you info to confirm this, as i cant see how.

deductions are claimed when you have expenses that helped CREATE INCOME.
paying your tax bill doesnt create income. its a personal expense.

please find a reference and post it here - but i think youll struggle.

your right deductions are claimed for expenses that helped create income.

But you can also deduct expenses incurred as part of organising or paying your tax. for example you can claim your accounting fees,... your accountant may not have helped you earn income but he is an expense you have incurred as a result of the taxation process.

Ask you accountant, I am not going to go looking for a link, How ever it is in the "Small business for dummies" reference book, it makes reference to exactly this topic.

 

[Tysonboss1]

your right deductions are claimed for expenses that helped create income.

But you can also deduct expenses incurred as part of organising or paying your tax. for example you can claim your accounting fees,... your accountant may not have helped you earn income but he is an expense you have incurred as a result of the taxation process.

Ask you accountant, I am not going to go looking for a link, How ever it is in the "Small business for dummies" reference book, it makes reference to exactly this topic.

Just to make it clear, I am not saying that you can claim the actually Tax Bill as a deduction, I am just saying you can claim the interest.

For example - If you get a tax bill for imediate payment of $10,000, But you don't have the $10,000 you can take out a loan the $10,000. If it takes you 3 months to pay it back you may be charged $500.00 interest. This $500 interest can them be claim in the next years return.