As a Sole Proprietor, Can I Write Off My Student Loan Payments?

Written by James Hirby and Fact Checked by The Law Dictionary Staff  

If you're a sole proprietor, you probably write off hundreds or even thousands of dollars in business-related expenses each year. As a business owner, you're eligible for many tax breaks that regular taxpayers can't claim. When times are tough, these breaks can provide a much-need boost to your income and allow you to make essential investments in your business. Many small business owners swear by these deductions and lobby the IRS to make enhancements to them at regular intervals.

Unfortunately, there are limits to the business-related expenses that sole proprietors may claim. Although you're likely to be permitted to deduct the cost of self-help books, business seminars and continuing-education classes, the IRS won't allow you to deduct the principal payments that you make on your college-era student loans. If you financed your undergraduate education with federally-backed or privately-sourced student loans, you'll need to eat the cost of your principal repayments.

However, you may be able to claim the interest that you pay on your old student loans. In fact, this privilege is not reserved for sole proprietors. Virtually anyone who meets certain income requirements is eligible to write off the interest that they pay on their outstanding student loans. For many borrowers, this adds up to a significant tax deduction. If your student loans carry an effective annual interest rate of 6 percent and a remaining principal balance of $30,000, they'll accrue interest at the rate of $1,800 per year. Depending upon your average income tax rate, a write-off of this size could reduce your total tax liability by as much as $1,000.

Although your status as a sole proprietor doesn't entitle you to write off the principal payments that you make on your student loans, it does permit you to write off plenty of other business-related expenses. If you work from home, you may be entitled to an even greater array of write-offs.

Many sole proprietors are eligible to deduct all of the expenses related to the maintenance of their home offices. Even if you work in a number of locations or maintain a physical office in a remote location, you might still be able to claim these expenses. Start by measuring your home office's dimensions and calculating its square footage. Next, divide this figure by your home's total square footage. Using the resultant fraction, calculate the office's "share" of your mortgage expenses, heating costs, Internet fees and other related expenses. Under current tax laws, you can deduct these "shares" from your total taxable income.

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