Credit card fees can add up and become extremely expensive. At PayFrog, we know how important it is for businesses to understand exactly what credit card fees are tax deductible. As one of the top merchant services companies in Tampa, Florida, our knowledgeable team is passionate about making sure our clients have access to the most recent information regarding credit card fees. As tax season comes around, it’s helpful to know which credit card fees are deductible.
Are Credit Card Fees Tax Deductible?
The short answer is: sometimes. A number of factors are evaluated to determine if credit card fees are deductible or not. One of the most important factors is whether credit card fees are due to business expenses or personal expenses. Certain types of credit card interest are deductible because they were for a business expense, including interest on money you borrow to purchase an investment property.
Some deductions are considered individual deductions, including the interest you pay on personal purchases. So, if you’re using a credit card for travel or everyday expenses, you won’t get a tax break for the interest incurred. You are only eligible to receive tax deductions for interest incurred due to business expenses.
If you own a business and you use a credit card to pay some or all of your costs, the interest you incur may be deductible. Nearly every kind of business charge or fee on a business credit card can be deducted. Deductions for businesses are outlined by the IRS and have been updated to include new deductions for 2021.
Business owners can deduct nearly every business-related expense made throughout the year. Any fees incurred for processing a business credit card are deductible. For credit card usage, a business can deduct many types of charges, including:
- Finance charges
- Annual fees
- Monthly fees
- Late fees
In order to be tax deductible, these charges must all be related to the business. If someone uses their business credit card for personal expenses, those expenses are not tax deductible.
What Types Of Interest Aren’t Deductible For Businesses?
While business credit card interest fees are tax deductible, there are some types of interest you cannot deduct on your taxes. This includes interest on:
- Personal loans
- Loans used to pay taxes or fund a retirement plan
- Overdue taxes (unless you operate a C-corporation)
- Loans that exceed $50,000 that you borrowed against a life insurance policy
- Debts your business doesn’t owe
- Prepaid interest (if you’re a cash basis taxpayer)
Best Ways To Deduct Credit Card Interest
If you’re deducting credit card fees and interest, it’s crucial to do so in the appropriate way. To keep your tax filing as stress free as possible, consider the following tips.
1. Don’t Mix Personal And Business Expenses
Avoid confusing credit card statements by keeping your personal expenses and business expenses separate. If you use your credit card for both, it will be up to you to ensure you sort out which interest charges apply to which type of purchases.
2. Report Deductions Properly
If you’re deducting credit card interest and fees for business expenses, you must report them correctly on your tax return. They need to be included in a Schedule C, or in a Form 1040.
3. Keep Good Records Of Tax-Related Information
Of course, good record keeping is an essential part of owning a business. The IRS expects you to keep all receipts, credit card statements, and other relevant financial statements. If you get audited, you need documentation to prove your deductions were legal.
Credit Card Processing And More With PayFrog
PayFrog is a premier merchant services provider for businesses in Tampa, Florida, and across the United States. We represent people in business and provide the best pricing and technology for seamless electronic payment processing. In addition to payment processing, we offer a wide variety of services including electronically filing receipts, archiving reports, scheduling billing payments, and more. If you are ready to invest in the best merchant services for your business, contact us today!
PayFrog is not a tax agency and this article is for general informational purposes only. We always recommend you seek the advice of a tax professional for tax advice.