Use The Business Credit Card Interest as a Business Expense

Understanding Business Credit Card Interest

If you’ve carried a balance on your business credit card, you’re not alone. Many small business owners use credit cards to cover day-to-day expenses, fund inventory, or manage cash flow during lean periods. While carrying credit card debt and paying interest is not what small businesses want to do, it does happen, and it’s important to know that some of that financial burden might be offset by a tax deduction.

What Qualifies for Deduction?

To take advantage of this deduction, you need to ensure

• The Credit Card is Used Exclusively for Business:

Interest on personal purchases mixed with business expenses will not qualify. Commingling personal and business expenses may result in the IRS disallowing all legitimate expenses. Maintaining a separate credit card exclusively for business use simplifies record-keeping and ensures that only qualified interest is claimed.

• The Expenses Are Business-Related:

Examples are office supplies, travel expenses, advertising, equipment purchases, food, and more.

• You Have Proper Documentation:

Retain detailed statements and receipts to prove the expenses were business-related. This documentation is crucial in the event of an audit.

How to Calculate Deductible Interest

To determine the deductible portion of your interest:

• Review your credit card statements.

  
  

• Identify and total the interest charges.

  
  

• Ensure these charges is business-related expenses only.

For example, if 80% of your credit card charges are business-related, then 80% of the interest paid can be deducted. Using accounting software or working with a tax professional can help you accurately calculate these amounts.

Strategic Tips for Business Owners

Keep Business and Personal Expenses Separate:

This is not only a good financial practice but also essential for maximizing tax benefits and avoiding IRS scrutiny.

Pay Attention to High-Interest Rates:

While the interest might be deductible, carrying a high balance means paying more in interest over time. Consider this deduction as a silver lining, not a strategy to overspend.

Work With a Tax Professional:

An IRS Enrolled Agent can deduct business credit card interest and ensure compliance with all tax laws.

Using a business credit card responsibly can also help:

• Build your business credit profile.

  
  

• Earn rewards or cash back that can be reinvested into your business.

  
  

• Improve cash flow management.

  
  

Carrying a balance on your business credit card isn’t ideal, but understanding how the interest you’re paying can be deducted may result in paying less tax or receiving a refund depending on additional expenses. Remember, the key is accurate record-keeping and ensuring that all expenses align with IRS guidelines.

At Chime In Consultancy, we help our small business owners structure their businesses and navigate the complexities of business taxes making sure they receive for every deduction they’re entitled to. If you require finding your legitimate expenses throughout the year and want to be ready at tax time make an appointment for a Tax Review and Tax Plan consultation. We will guide you through your tax deductions find out about year-end savings and provide tax planning for the year ahead.