Overview: The IRS allows you to deduct certain expenses. This allows you to reduce a portion of your earnings, so it’s not subject to tax. Are credit card fees and interest deductible when used for business expenses?
Personal interest is interest you pay on goods and services not used for work/business related. Common examples include buying clothing, cars, and food. When you make monthly payments, including interest, on nondeductible personal interest – the answer is NO it’s not tax deductible.
Deductible credit card interest
One exception to this rule is if you use a credit card for business. Many companies use credit cards to buy equipment in the business, or other daily business transactions. When you use a credit card in this manner, the interest payments you make on the credit card are deductible as a business expense. It means you can reduce the amount of your overall business gross income so you can pay less taxes. If you use the credit card for both business and personal expenses, you have to make sure you only deduct the interest which accrues on the business purchases.
The tax reform act of 1986 changed many provisions in the Internal Revenue Code. One of the most notable was the elimination of the personal interest deduction. Before this, you could deduct all credit card interest payments.
How to avoid nondeductible credit card interest
Sometimes, it may be possible to claim an interest deduction by using a payment method other than credit cards. For example, instead of using your credit card to pay tuition, you could look at using student loans. When you utilize a student loan, the IRS lets you deduct the interest payments on it until the loan is paid off.
Before 2018, the interest on a home equity loan was deductible. Beginning 2018, home equity loan interest is no longer deductible unless it’s used to buy and build your home.
Is Credit Card Interest Tax Deductible for My Business
Everyone wants to use credit cards. You can earn points, which make paying for items easier. If you’re a business owner, your business credit card has expenses and fees that are tax deductible. Some business credit cards are better at helping you get tax deductions than personal credit cards. Nearly any fee you pay on your business credit card can be written off if it was meant for business purposes.
Credit card interest
Typically, you won’t pay interest on your business purchases. There are times when you need equipment though, and there isn’t enough money in your bank account to pay it off right away, or pay the full balance. The good news is you can deduct any interest charges you pay from your taxes.
The annual fee you pay for your credit card is tax deductible. It can help you justify getting that credit card which has a heavy annual fee.
Hopefully you don’t have any late fees. Mistakes happen, and you may forget to make a payment. If that happens, the late fees can be written off. It’s best to call the company and explain you forgot, and ask if they can waive the fee.
If you accept credit card payments, you pay a swipe fee each time to the issuer. The fee can be 1.5% to 5%. Those fees are deductible from your business taxes.
Sometimes there are other fees associated with using a business credit card. If you need cash, the cash advance fees are deductible. Many financial advisors don’t recommend this way of getting money. It’s for emergencies only.
Interest on personal expenses isn’t tax deductible
If you use your credit card for personal expenses and accrue interest, it’s not tax deductible. If you use it personal expenses, as well as business expenses, you have to review your statements and be careful on how much interest was for business expenses.
Maximize your tax deductions
Using a business credit card is a good way to build a strong credit history. Maintaining a good credit score and history can help you get a business loan if needed. It’s also a good way to ensure your business gets lower interest rates on your business loans and credit cards. No matter how small or big your business is, we recommend you use a business credit card for business expenses. You can deduct any credit card interest charges, and fees, from your future business taxes.