Getting credit for small-business loan interest
Dear Tax Talk,
My husband, who is a U.S. citizen, has a $400,000 business loan that he invested in a dairy farm limited liability company with nine foreign investors. The business loan interest rate is 5.5 percent payable in 15 years. At the end of the year, the interest credit goes to the dairy farm. I feel like we should get a credit since we are the one paying the loan.
Is there any way we can be credited for the interest we paid? Is it possible to create an individual LLC for the purpose of deductible credits that should be due to us instead of the dairy farm? My husband is also spending our personal money for business purposes, and we give the receipts to the accountant. I am very worried that we might not be able to continue paying for the loan since the dividend was stopped already, and it might take about one year for the farm to recover due to losses and expansion expenses.
Second question: Our adjusted gross income for our jointly filed 2011 tax return was negative because of the carry-over negative income of the dairy farm on 2010. But according to the accountant, my husband earned $31,000 for 2011.
I would like to continue contributing to his Social Security that was stopped since 2008 because of the negative adjusted gross income since he invested in the farm. I am a school nurse earning $20,000 a year. Any advice in regard to our situation will be helpful and highly appreciated.
When you say you want to be credited with the interest you pay, I assume you mean you want to deduct it from your taxable income. There is no credit per se for paying interest. If the loan is paid in full by your husband, then it doesn't make sense that the farm would take the deduction for the loan interest. I'm not sure what your accountant advised, but if you were my client and you paid the loan in full each year, you should claim the business loan interest deduction. You wouldn't have to create an LLC to get the deduction. Your interest would be deductible on Page 2 of Schedule E where you report the dairy's income or loss.
With respect to your second question, there is no voluntary way to contribute to Social Security, and even if there were, it probably wouldn't make sense. Remember: In order to receive Social Security benefits, you have to be alive, whereas if you save an equivalent amount in a regular savings account, it will be there even if you're not.
Ask the adviser
To ask a question on Tax Talk, go to the "Ask the Experts" page and select "Taxes" as the topic. Read more Tax Talk columns.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.