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Are business credit card annual fees tax deductible?

Are business credit card annual fees tax deductible?

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This article was last updated Mar 11, 2019, but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.

Business owners can write off many costs involved in their day-to-day operations, but one that may be often overlooked is the ability to deduct business credit card annual fees from their taxes.

Here’s the good news: annual fees (as well as some other credit card fees) on business cards are tax deductible, according to guidelines from IRS Publication 535.

In order for your expense to be deductible, it must be “both ordinary and necessary,” according to the Internal Revenue Service. Here’s how the IRS defines these expenses:

  • Ordinary expenses are “common and accepted in your industry.”
  • Necessary expenses are “helpful and appropriate for your trade or business.”

Business credit card annual fees fall into these requirements since many of the daily business transactions you make will be paid for with a credit card, and the annual fee helps provide a payment method.

“Yes, for businesses they are deductible, and if an individual has a small business or is self-employed, they are [also] deductible as business expenses,” said Mark Steber, senior vice president and chief tax officer for Jackson Hewitt. This is especially helpful for business owners who pay a hefty annual fee — sometimes up to $595 — for a business card.

However, you should only use a business card for business expenses; not personal expenses, as credit card interest on personal expenses is not tax-deductible. Things get complicated if you pay for personal expenses on your business card, and this may disqualify you from deducting the annual fee.

Certain credit card fees are deductible only if they are incurred on behalf of your business, said Steber. However, if you use a personal card solely for your business, then that annual fee can be considered a deductible expense. As a business owner, it’s best to keep expenses separate by using two cards — one for personal expenses and another just for business expenses.

Just know, while it’s helpful that business card annual fees are tax deductible, that alone isn’t a valid reason for opening a card with a sky-high annual fee. You still need to be able to justify paying the fee every year. Before you open any business card that incurs an annual fee, consider if the rewards and added perks will continue to offset the fee every year. Most business cards that charge high annual fees provide benefits, such as annual credits and high rewards rates on typical business spending, which help offset or justify a high fee.

For example, The Business Platinum® Card from American Express has a steep $595 annual fee, but if you take advantage of the $200 annual airline fee credit and $200 annual Dell statement credit, the fee is effectively knocked down to $195, but you can deduct the entire annual fee. Factor in the rewards program, shopping discounts, application fee credits for Global Entry or TSA Pre✓®, and the fee can be more than worthwhile.

  • Earn up to 75,000 Membership Rewards® points*

  • Complimentary access to over 1000+ airport lounges*

  • Get 50% more Membership Rewards® points. That's 1.5 points per dollar, on each eligible purchase of $5,000 or more*

Highlights
  • Welcome Offer: Earn up to 75,000 Membership Rewards® points.
  • Earn 50,000 Membership Rewards® points after you spend $10,000 and an extra 25,000 points after you spend an additional $10,000 all on qualifying purchases within your first 3 months of Card Membership.
  • Get 5X Membership Rewards® points on flights and prepaid hotels on amextravel.com.
  • Get 50% more Membership Rewards® points. That's 1.5 points per dollar, on each eligible purchase of $5,000 or more. You can get up to 1 million additional points per year.
  • 35% Airline Bonus: Use Membership Rewards® Pay with Points for all or part of a flight with your selected qualifying airline, and you can get 35% of the points back, up to 500,000 bonus points per calendar year.
  • Enroll to get up to $200 in statement credits annually by getting up to $100 semi-annually for U.S. purchases with Dell. Terms apply.
  • Get one year of Platinum Global Access from WeWork. With this membership, you can access 300+ premium, inspiring workspaces in 75+ cities. To get this exclusive offer, enroll between 2/15/2019 and 12/31/2019.
  • See Rates & Fees

See additional details for The Business Platinum® Card from American Express

More Info

However, if your business doesn’t require frequent travel, you may want to consider a business cashback card, such as the Capital One® Spark® Cash for Business, which earns 2% cash back for your business on every purchase, everywhere. Spending $4,750 annually can offset the fee, which is waived the first year.

  • 2% Cash Back for your business on every purchase, everywhere

  • Earn a $500 cash bonus once you spend $4,500 on purchases within 3 months from account opening

  • Redeem cash back for any amount at any time

Highlights
  • Earn unlimited 2% cash back for your business on every purchase, everywhere
  • Earn a one-time $500 cash bonus once you spend $4,500 on purchases within 3 months from account opening
  • $0 annual fee for the first year; $95 after that
  • $0 Fraud Liability if your card is lost or stolen
  • Free employee cards, which also earn unlimited 2% cash back on all purchases
  • Rewards won't expire for the life of the account, and you can redeem your cash back for any amount

See additional details for Capital One® Spark® Cash for Business

More Info

Find out if interest on a business credit card is tax deductible.


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