4 Surprising Tax Deductions For Business Credit Cards

Money Matters

Aug, 21 2017

*Editorial Note: This content is not provided or commissioned by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.

Every tax deduction you are allowed to take reduces your level of taxable income.

As a business owner, you want to keep as many of your hard-earned dollars that you can. Don't leave money on the table. You don't want to overpay when tax time rolls around.

It turns out Uncle Sam is fairly generous when it comes to tax deductions for business credit cards.

"In general, all ordinary and necessary business expenses are deductible, including the cost of maintaining a credit card for business purchases, such as for supplies and equipment," says Jackie Perlman, principal tax research analyst at The Tax Institute at H&R Block.

Check out these four tax deductions Perlman outlined here:

  1. Annual fee. Many business credit cards have no annual fee or have introductory $0 annual fee for the first year. If you do choose one with an annual fee, it will be a tax deduction for your business.
  2. Fees your business pays in order to accept payment from a customer's credit card are tax deductible. Americans are increasingly reaching for plastic over cash. There are a number of payment systems from Square to Shopify to Shopkeep. No matter the processor you choose there are fees just to accept your customer's money. Add these into the tax deduction pile.
  3. Late fees. Accidents happen and if you are late on a business credit card, that late fee can also count as a tax deduction. "It is best for the business, however, to keep track of bills and due dates in order to avoid unnecessary late charges," Perlman says.
  4. Interest charges. A business may deduct interest that it is legally liable to pay, including credit card interest, Perlman says. Be warned: "Interest charged on personal purchases is never deductible." Consult your annual credit card statement to find the numbers. That should show total interest charged and paid for the year.

You know it's best to streamline and simplify. Business owners are often the "Chief Everything Officer." When it comes to tax time relying on a business credit card can make it easy to find the numbers you need fast.

When it comes to tax time relying on a business credit card can make it easy to find the numbers you need fast.

"The most important guideline to keep in mind is that to deduct all fees and interest, the credit card must be used exclusively for your business. Otherwise, charges must be allocated between business and personal use items, which can be a cumbersome and problematic task," Perlman says.

It's best to have a business credit card for many reasons. It allows you to separate your personal expenses from your business. If an unforeseen business expense arises, the card can act as an immediate and open credit line. With an eye on the long-term, it can help you build your business credit score. That will be beneficial if you apply for business loans to grow your business down the road.

These four tax deductions only sweeten the pot.

Many business credit cards with an annual fee offer valuable perks that could help your bottom line.

Top Choices From Our Editors

  • If your business spends a lot at office supply stores or gas stations, the Bank of America® Business Advantage Cash Rewards Mastercard® credit card is a cash-back machine. This no-annual fee card can be a business boost on several fronts. Earn a $200 statement credit when you make at least $500 in net purchases within 60 days of your account opening.. Keep on earning 3% cash back on purchases at gas stations and office supply stores (up to $250,000 each calendar year, 1% after that), 2% cash back on purchases at restaurants, 1% cash back on all other purchases. Unlike other cards that cap rewards at $25,000 or $50,000, the Bank of America® Business Advantage Cash Rewards Mastercard® credit card has an impressively large annual cap on combined gas station and office supply purchases. That delivers high-performance cash back for your businesses. An intro APR of 0% for 9 billing cycles on purchases gives your business breathing room if you need to make a large purchase or are facing a cash flow lag.
  • If your business has you in the air a lot, the CitiBusiness®/ AAdvantage® Platinum Select® World Mastercard® offers you first checked bag free on domestic American Airlines flights for you and up to four companions traveling on the same reservation.
  • Fly in style with The Business Platinum® Card from American Express OPEN offers 50,000 Membership Rewards® points after you spend $10,000 within your first 3 months of membership. Earn an extra 25,000 points after you spend an additional $10,000 on qualifying purchases in your first 3 months.
  • With the Ink Business PreferredSM Credit Card you can earn 80,000 bonus points after you spend $5,000 on purchases in the first three months from account opening. That's worth $1,000 toward travel when you redeem through Chase Ultimate Rewards®.

Note: Always check with your tax accountant regarding your specific situation. Tax laws are constantly changing.