Many people run a business and use checks to pay most of their business expenses. When they need to use a credit card instead of writing a business check – like when they rent a car or place an order for supplies over the Internet – they just pull out their own personal credit card and use it, reimbursing themselves later from the business bank account. But when it comes to paying business taxes – which can be expensive and complicated to keep track of for IRS or state filing purposes – a business credit card offers one significant perk that is so handy it may convince you to get one and start using it.
When you use a credit card for business and then pay interest on the credit card balance, that interest is usually tax deductible. That is not true with normal interest you pay on personal credit cards, and with interest payments as high as 20 percent or more on many credit cards, the tax deduction perks are really substantial. The reason it is important to get an exclusive designated business credit card is that you will have a completely separate billing statement and account – distinct from those tied to your personal credit card usage.
The IRS and your state tax office have stringent rules that prevent you from tacking on personal expenses to your tally of qualified business expenses. But if you use just one card for business, those deductable interest payments will be automatically separated for you each month. Most credit card companies will also send you a year-end summary of your year’s expenses – neatly tabulated into various expense categories like “travel,” “office supplies,” “meals,” “gasoline,” and so forth. That saves you lots of time and frustration at tax time, and it gives you a tidy document to use to prove that the tax deductions you claim are really and truly legitimate.
But the main perk is that you can deduct your interest payments. If you use your credit card like many businesses do – as a way to give yourself hassle-free loans and cash advances – then the amount of interest you pay to service that credit card debt could be huge. Getting to write it off as the cost of doing business at tax time turns it from a negative into a big positive, though, and if you are missing out on that tax deduction you should seriously consider taking advantage of it with a business credit card.
