4 Surprising Tax Deductions For Business Credit Cards

Money Matters

Sep, 17 2020

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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.

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