Merchant Cash Advance Taxes and Bookkeeping
MCA taxes and bookkeeping: how to record a merchant cash advance.
Most bookkeepers record a merchant cash advance as a liability when the money arrives, then split each payment between the balance and the cost. The cost, meaning the payback minus the advance plus any fees, is usually treated as a business expense over the life of the advance. The details depend on your books and your contract, so check the treatment with your CPA.
How do you set up an MCA in your books?
- Create a liability account for the advance, named for the funder.
- When funds arrive, record the total payback in that account, the cash that reached the bank, and the difference in a separate cost account.
- Put any fee taken out of the funding in the cost account too. Your CPA can expense that account over the life of the advance.
- Each payment reduces the liability. A share of it moves from the cost account to expense.
- At payoff, both accounts should reach zero. Keep the zero-balance letter with your records.
Is the advance income?
No. The money you receive is the funder's purchase of future sales, not revenue you earned, so it doesn't belong in sales. Your CPA sets up how the advance and its cost are recorded, and each payment reduces that balance as it clears.
What does this look like with real numbers?
Say you receive $30,000 with a 1.35 factor, so you owe $40,500. The fee in the deal is $10,500. You make 120 daily payments of $337.50.
| Entry | Liability | Cost to expense |
|---|---|---|
| Funds arrive | $40,500 owed | $10,500 recorded |
| After 60 payments | $20,250 owed | $5,250 expensed, $5,250 left |
| After 120 payments | $0 owed | $10,500 expensed |
Spreading the cost evenly is one method. Your CPA may prefer another. Tax treatment depends on your books and your contract, so check it with your CPA.
What should you hand your CPA?
- The signed contract and any state disclosure form.
- The funding confirmation showing what reached your account.
- A statement of payments from the funder, or your bank statements with each debit marked.
- Any payoff letter, renewal paperwork or zero-balance letter.
What mistakes do owners make?
- Recording the advance as sales. It's not income.
- Expensing each full payment. Most of each payment repays the balance.
- Losing track after a renewal. The old balance paid by the new advance needs its own entry. The renewal calculator shows the split.
- Mixing advance debits with other transfers so nobody can match them later.
We don't give tax advice. Applying is free, and you never pay Afterfirst a fee. The funder pays our commission only if a deal funds, and the amount is in the offer paperwork before you sign.
Where do these facts come from?
Questions about your file?
Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.