Individuals and businesses use credit cards every day. Both earn rewards points that make paying for needed items easier. But if you’re a business owner, your business credit card has expenses and fees attached to it. Thankfully, some of those expenses and fees are tax deductible on your business taxes—including the credit card interest. Some business credit cards are better at helping you score deductions on your taxes than personal cards. In fact, nearly every fee you pay on your business credit card can be written off.
Let’s look at how credit card interest is tax deductible along with some other possible deductions. A note: Don’t assume these deductions apply to your personal credit card.
1. Credit Card Interest Charges
In an ideal world, you won’t pay interest on your business purchases. But, there are times when you need equipment, and there just isn’t enough cash in the bank to pay for it right away or to pay the full balance on your card that month. The good news, you can deduct any interest charges you do pay from your taxes. The only requirement is that the purchase that you’re deducting the interest for business-related and made during that tax year.
To determine how much interest you paid over the year for business expenses, simply check the monthly credit card statements from your business card issuer.
2. Annual Fees
The annual fees you pay on your business credit card are tax deductible, which can help justify getting that business credit card with the steeper annual fee that also has amazing rewards. Yes, you can write it off. Remember though that the primary use of the card needs to be for business purposes and not for personal expenses.
3. Late Fees
Hopefully, you’re not incurring late fees on your business credit cards. Mistakes happen though, and you may sometimes forget to make a payment. If that happens, late fees can be written off of your business taxes. Of course, it’s always best to call the company and explain you forgot and ask if they can waive the fee this time. Saving $39 is likely going to deliver a higher ROI than claiming a tax deduction for a late fee.
4. Swipe Fees
If you accept credit card payments from your customers, you pay a swipe fee to the customer’s card issuer each time. That fee can be from 1.5% to 5% of the transaction total. The good news here, those fees are deductible from your business taxes as well.
5. Miscellaneous Fees
Sometimes other fees are associated with using a business credit card. For instance, if you need cash, any cash advance fees are deductible. However, most financial professionals don’t recommend this expensive way of accessing cash. Do, consider it for emergencies only.
Convenience fees—paid for the “convenience” of using a credit card to pay when the card isn’t a typically accepted form of payment—are also deductible on your business taxes.
Interest Paid on Personal Expenses Is Not Tax-Deductible
The deductibles covered here are for business credit cards and business expenses only. If you use your business credit card for any personal expenses and pay interest on those expenses, that interest is not deductible on your business tax return.
If you use your business card for personal expenses as well as business expenses, review your statements and calculate how much of the interest was for business expenses. Simply recalculate the interest for the total monthly balance minus the cost of the personal items.
It’s always easier to calculate your interest during tax time if you dedicate your business credit card to just business purchases. Keep your personal finances out of the equation. It’s also a better way to prove all your expenses if something comes up and the IRS has questions.
Maximizing Your Tax Deductions as a Business Owner
Using a business credit card is a great way to build a strong credit history for your business. Yes, Virginia, businesses have credit scores and reports too. And maintaining or building a good credit score and history for your business can help you get a business loan if needed someday. It’s also a way to ensure your business has access to lower interest rates on your business loans and credit cards.
And no matter how big or small your business is, if you use a business credit card for business expenses, you can deduct credit card interest charges and fees from your business taxes.
To maximize your business tax deductions, make sure to take advantage of each deduction available to you. If you’re unsure if a particular fee qualifies as a deductible expense, it doesn’t hurt to see a tax professional to make ensure you’re maximizing all the tax deductions available to you as a small business owner.
If you think you’ve been leaving credit card-related tax deductions on the table, it’s a good idea to go through your card statements before filing your taxes and add up all the fees. You could reduce your business tax liability considerably if you’re using your credit card for business use.
This article was originally published January 1, 2017, and has been updated by a different author.