Edited by: Nick Ellis
& Juan Ruiz
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If you’re paying hundreds — even thousands — in credit card interest fees each year, getting to write off that expense at tax time could take some of the sting out. But unless you’re using a credit card for business expenses, your credit card interest isn’t tax deductible.
Ultimately, whether you can deduct credit card interest depends on whether the expense you’re paying interest on was a business or personal expense. If it was a business expense, it’s tax deductible, but if the credit card interest was charged on a personal expense, you can’t use it as a deduction.
Read on to learn more details on what credit card interest is — and isn’t — tax deductible.
Credit card interest is only tax deductible when you’re paying interest on business purchases. Ideally, that’s on a business credit card you use only for business purposes.
You can deduct credit card interest on business expenses you charge to a personal credit card, but you’ll have to do the math to figure out what portion of interest charges apply to business expenses instead of personal expenses.
Hot Tip: Need a business credit card to keep your business and personal expenses separate? See the best business credit cards we recommend.
There are a few types of interest payments that are tax deductible — and personal credit card interest isn’t one of them. You can write off interest on home loans, student loans, and business expenses.
It wasn’t always this way. Nearly 40 years ago, you could deduct all forms of personal interest. But the Tax Reform Act of 1986 eliminated most personal interest tax deductions. Still, you can take a tax deduction on business credit card interest — as long as the interest applies to business (not personal) expenses.
While you can’t deduct credit card interest on personal credit card expenses, you can deduct interest payments on:
When you use a credit card — ideally, a business credit card — for business expenses, any interest you pay is tax deductible.
That means if you own a business, are self-employed, or are an independent contractor, you can deduct credit card interest on your business expenses. You’ll report the interest as a business expense when you fill out your tax return, which is a business tax return for many businesses, or a Schedule C if you’re an independent contractor or self-employed.
But that doesn’t mean you can use your business credit card for personal expenses so that you can deduct the credit card interest. The fact you’re using a business credit card doesn’t make personal expenses classify as business ones.
If you’re using a business credit card for personal expenses, the interest you pay for those personal expenses is not tax deductible. For this reason, among others, it’s not a good idea to use your business credit card for personal expenses.
If you’re paying interest on both business and personal expenses on your credit card, you’ll have to calculate what portion of your interest payment is for business to accurately report and deduct your credit card interest as a business expense.
One of the best features of business credit cards is the ability to keep your business and personal expenses separate. Business credit cards typically offer reports that make it easy for you to track how much you’ve spent in any category throughout the year — and that includes the amount of credit card interest you’ve paid.
When you keep your business and personal credit card expenses separate, you’re able to simply plug in the numbers from your business credit card reports at tax time. Unless you’ve made personal charges on your business credit card, you won’t have to break up expenses by business and personal to calculate how much interest you’ve paid on each.
Conversely, if you’re using a personal credit card for business expenses, you’d have to identify which expenses are for business and then calculate how much interest you’ve paid on those expenses throughout the year.
When you file taxes, you’ll include credit card interest as an expense on your business tax return.
Depending on your business structure, you’ll report credit card interest on one of these forms:
If you’re self-employed or an independent contractor and you don’t have a separate business entity, you’ll add credit card interest to your business expenses on the Schedule C portion of your 1040 Form. A Schedule C is used to report profit or loss from a business.
Like credit card interest, credit card fees aren’t tax deductible unless the fees are for a business expense. When you use a business credit card, you can include the annual fee and other credit card fees as an expense when you file taxes. But if you’re using a personal credit card, fees aren’t tax deductible.
While it’s nice to write off credit card interest as a business expense, it’s even better to not pay interest on credit cards at all. Yes, deducting business credit card interest offers savings at tax time, but you’ll save more by not paying credit card interest unless you have to.
One way to avoid business credit card interest is to use a card such as The Business Platinum Card® from American Express, which requires payment in full each month. Or you can just pay your bill in full each month on any other business credit card.
If you need to carry a balance, a business credit card with 0 APR can help you avoid interest charges during the introductory period. Some 0% APR business credit cards offer no interest for as long as 20 months or may allow you to transfer a balance at 0% APR. If you want to avoid paying interest entirely, you’ll need to pay off the balance before the introductory period is over.
Business credit card interest is the only type of credit card interest that’s tax deductible. If you own a business, even as an independent contractor, you can write off any interest charges and credit card fees on business expenses. You can make tax reporting easier if you use a business credit card to separate your business and personal expenses — and it’s even easier if you use a 0% APR business card so you don’t need to pay interest at all.
For rates and fees of The Business Platinum Card® from American Express, click here.
Personal credit card interest is not tax deductible.
Before the Tax Reform Act of 1986, many forms of personal interest were tax deductible, including personal credit card interest.
You should deduct credit card charges in the year you charged the expense, not the year you pay it off.
Yes, credit card interest charged on business expenses is tax deductible as a business expense.
Credit card payments aren’t wholly tax deductible, but you can use your business credit card to pay for business expenses, then itemize those expenses on your business tax return for deductions.
Yes, business credit card interest is tax deductible as a business expense on your Schedule C tax form.
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