[SBF]

The interest paid on an Unsecured Business Loan is an ordinary business expense and is tax deductible. Merchant Cash Advances represent future sales sold at a discount and have no clear tax benefit, or do they?

[rld]

That is a good question.. I do believe that a good accountant can find a way to write off the factor on a MCA though.

One of my clients has done a few of these over the years and he finds a way to write off the excess.. I will have to ask him how he does it.

[bruce@bdfunding.com]

It would be greatly appreciated if you can let us all know how he accomplishes the write off - both great marketing toll for all, and great for the client's bottom line

[Sean Cash]

The interest paid on an Unsecured Business Loan is an ordinary business expense and is tax deductible. Merchant Cash Advances represent future sales sold at a discount and have no clear tax benefit, or do they?

In the past, I had merchants tell me that their accountants just recorded the transaction as a loan because they didn't know what else to do. There are no Generally Accepted Accounting Principles regarding the sale of future revenue. This dialogue between accountants just popped up 3 days ago if anyone is interested: http://sagecity.na.sage.com/support_...9/t/76061.aspx

[bdshaw]

My suspicion is like in some factoring instances the accountant would book the transaction as a secured loan. They would have two arguments, First there are no substantial court decisions and second, if it looks like a duck....

[Sean Cash]

I think the spread is probably deductible no matter how you book it. If you sell $14,000 worth of future revenue for $10,000, then you could book $10,000 in revenue because that is your proceeds from the sale. Then the future $14,000 would not be reported as revenue because you already relinquished your right to those dollars. You could underreport revenue or expense the spread.

The IRS is very simple-minded though. More than likely if you start getting fancy with how to record it, you're just asking to be audited. They'd probably prefer you book the spread as interest for the purpose of taxes.

I'm not a CPA though :]

[rld]

I talked to the guy today and it is just how you would think.. they claim it as a loan and write the factor off as interest.

If an audit was ever done the CFO would show the IRS the contract and that would be that.. I am sure plenty of companies who have taken MCA's in the past have been audited and I seriously doubt any sane business man is paying taxes on income he didn't receive.

He told me that he could also write off the factor as an expense if he chose to.. but in order to avoid an audit writing it off as interest is the best way.