When it comes to managing your finances, a business credit card, when used properly, can be a valuable asset. The right card can help you make big purchases, manage gaps in cash flow, earn points and rewards, and build your business credit score. And, as many small business owners have come to find, it can also come in handy during tax season.
When used regularly to make business purchases, your credit card can prove to be an excellent expense tracker, offering quick and easy access to itemized statements cataloging your purchases, something obviously helpful when completing your taxes.
However, when it comes to credit cards and deductions what, most business owners really want to know is if they leverage all those credit card payments to lighten their tax load. The answer? Yes and no – as if taxes were ever simple.
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Business Credit Card Tax Deductions
Credit Cards, Debts & Deductions
To you, credit card balances, loans, and lines of credit may all represent very different things, but to the IRS, they all represent debt. Unfortunately, debt is not a qualified tax deduction, though it would certainly be nice if it was.
Since your credit card payment is a payment on your debt, you can’t deduct your payments come tax time. But, as alluded to above, there are credit card related deductions you can take.
In order for an item to be deductible, the IRS states that it must be both “ordinary and necessary” for business. Though the explanation may be a bit vague, businesses typically can deduct expenses that were used to generate income and operate the business.
This typically includes administrative expenses, like equipment and supplies, rent, internet/phone, utilities, business or professional dues, etc., as well as travel and related expenses, like gas, automobile purchases, food, etc.
If you’re paying for all or some of those things on your credit card, you won’t be able to deduct the single monthly payment, but you can itemize the deductions for any eligible business purchases on the credit card. And, thanks to that monthly statement, you have an easy-to-access record of those items for filing purposes, as well as proof of purchase should you be audited.
Interest & Fees
You may have accurately assumed that you could claim expenses paid for using your credit card, but is that the end of the story when it comes to business credit cards and tax deductions? Fortunately, it’s not. In addition to expenses, you can also fully deduct any interest paid on business-related purchases. The same is true for any late fees, annual fees, or any other fee or charge that may have been passed down by your credit card company.
If you plan on deducting credit card interest and fees, be sure to only do so for those accrued between January and December of the tax year. Additionally, it’s also important to make sure you only include interest paid on business-related purchases. If you have used your credit card for personal purchases, then you’ll need to deduct interest from those purchases, as if can’t be included as a business deduction.
If you have a business credit card and want to use it to increase business tax deductions, you do have a few options. While you can’t deduct monthly payments, you can use your credit card to identify and deduct business expenses. Additionally, you can also deduct any interest paid on business purchases as well as any fees you may have had to pay over the year.
As you gather information for your 2018 taxes, be sure to collect and review your credit card statements to make sure you are getting the highest deductions possible. Of course, it’s important to only include expenses, interest, and fees that were business-related.
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This article was originally written on December 28, 2018 and updated on January 29, 2021.
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