Yes, credit card interest is deductible for businesses. But with recent changes, how much you can deduct has changed.
Is Business Credit Card Interest Deductible for Small Businesses?
Credit cards are a great tool that many businesses use to keep themselves running. If you don’t pay your balances in full at the end of each billing cycle, you’ll probably end up paying some interest.
The long answer to whether or not you can deduct credit card interest on your taxes depends on the situation. Let’s take a quick look at when you can write off your business credit card interest:
- Most (if not all) business-related credit card interest. Interest you pay on business credit cards is deductible when used for business-related expenses. The interest deduction also applies when the debt is directly related to your business operations, even if it’s a cash advance. As long as it went toward operating your business, you can write it off.
- Different forms of interest within the paid year. You can only deduct qualified interest during the year in which you incurred the debt or made the payments.
- Your business credit card’s annual fee. Some business credit cards come with an annual fee. If you have one of these credit cards, then you can write off the annual fee on your taxes.
Remember to keep your credit card statements and receipts to smooth the process of filing your small business tax returns. The IRS provides a host of resources to help you understand this process better, but in some cases, it may be a good idea to hire a qualified professional to do your taxes.
When is Your Business Credit Card Interest Not Tax Deductible?
One reason to opt for a business credit card rather than using a personal credit card for your business is that interest on a personal credit card isn’t usually tax deductible. Unless you can separate expenses from personal ones on your personal credit card, it can be hard to write off the interest.
Additionally, how much interest you can deduct has changed with the Tax Cuts and Jobs Act. When you file your taxes, businesses can only deduct up to 30% of their interest payments.
How to Make Claiming Credit Card Interest Easier
Claiming credit card interest on your taxes might sound difficult. Here are some steps to make it easier for you:
- Don’t use a personal credit card for business purposes. Maintain separate credit card accounts for easy accounting.
- See if you can find an automatic way of tracking your credit card expenses and the interest that you pay on them.
- Hire a professional accountant or tax lawyer who will evaluate your specific business situation and give you a clear picture of how you can take full advantage of your small business tax deductions.
Small business tax deductions can add up to a significant amount of money back in your pocket each year. Remember that hiring a professional can help you maximize your tax return so that you can continue investing in your business.