When a person takes a cash advance, there is a finance charge for this service. Though it varies by jurisdiction, it can be as high as 22 percent of the amount of cash advanced. To make matters worse, the charge begins accruing on the balance the day the advance is posted to the bank account of the borrower.
Individuals taking out cash advances are not entitled to claim related finance charges on their federal income tax return. This temporary loan is of a personal nature and therefore cannot be included as a tax deduction, no matter what the money is used to fund.
Therefore, the impact of the high charges should be considered prior to taking out the loan.
If a business takes cash advance loans, it may be able to deduct the finance charges as an itemized expense. The charge will be deductible when the money is used toward the business. If a business representative takes the cash for personal reasons, the transaction is treated like a personal loan and is not tax deductible.
A tax professional should be consulted when there is a “gray area” regarding the purpose of any cash advance because erring on the side of caution may mean the difference between a smooth tax filing process and being audited.
