Interest on late payroll taxes

[MarkCTX]

Client has Schedule C business. He is often late making payroll tax payments. IRS charges penalty and interest on late payments. The question is whether the interest only charged by the IRS is a deductible business expense. Pub 17 Chap 23 says personal interest including interest charged on income tax deficiency is not deductible. However , Pub 535 Chapter 4 under Interest on employment tax deficiency says Interest charged on employment taxes assessed on your business is deductible. Someone must have been audited on this issue. Anyone have any experience?

Mark C.

[Roland Slugg]

Payroll taxes are not income taxes. The interest on late payroll tax payments (but not the penalties) is deductible as a business expense on your client's Schedule C.

[MarkCTX]

Roland,

Wouldn't the interest applicable to penalty be nondeductible? And is there a source like a reg or a pub that clearly states that interest on PR tax is deductible? Or surely someone has an IRS audit experience with this issue.

[kathyc2]

Roland,

Wouldn't the interest applicable to penalty be nondeductible? And is there a source like a reg or a pub that clearly states that interest on PR tax is deductible? Or surely someone has an IRS audit experience with this issue.

"Interest on employment tax deficiency. Interest charged on employment taxes assessed on your business is deductible" IRS Pub 535