Is Interest From a Business Credit Card Tax Deductible?

Credit card interest paid for business reasons is deductible.

The tax deductibility of a business credit card depends on whether it's a business card or a business' card. What this means is that simply calling a card a "business" card, as opposed to a personal card, does not make the interest on it deductible. What makes credit card interest deductible is if it was incurred as a cost of financing acquisitions for a business. This standard applies regardless of the type of credit card.

Deductibility of Interest

You cannot deduct any interest that your business pays on its credit card on your personal income tax return. However, you can report your business' annual expenditures for credit card interest on its tax return or, for a sole proprietorship or LLC, on line 16 of its Schedule C to your 1040. In either case, the expense will reduce the business' net profit, decreasing how much tax either you or your business pays.

Other Credit Card Costs

As with other necessary and customary costs for your business, you can also take any costs related to your business' credit card as expenses against your business' income. These include annual fees, transaction fees and the like. The key thing is that the fees must be related to your business.

Use a Dedicated Card

Regardless of the type of credit card you use, having a dedicated one for your business is essential. If the card is solely used for business, the legitimacy of deducting its interest or annual fee becomes much clearer. You can also benefit by having it be a part of your business' credit record, as opposed to your personal record, potentially protecting you from derogatory information if your business fails.

Business Versus Personal Credit Cards

Although you do not need to use a credit card that is designated for business to write off its interest when used for your business, business cards have unique features. Many offer enhanced insurance coverage for such things as rental cars, as well as flexible reporting options to make accounting easier for business people. Some cards even offer the ability to receive a discount for paying promptly, just as with many vendor invoices.

References

• Internal Revenue Service: 2009 Schedule C (PDF)
• Inc: How to Responsibly Use Credit Cards for Your Business
• MasterCard: Business Card
• American Express: Business Charge and Credit Cards from American Express OPEN®