Feb 17, 2021

Did You Know: Business Credit Card Interest Is Tax Deductible

A huge challenge when filing taxes as a business is knowing what you can and cannot deduct. If you miss out on key itemized deductions, then you risk overpaying for taxes and limiting your company’s profitability. A little-known deduction that business owners often overlook is credit card interest. 

Keep reading to learn more about the guidelines set out by the IRS for writing off business credit card interest. 

Interest Accrued on Business Credit Cards Is Deductible

Business credit cards are often used to finance large purchases along with day-to-day costs, which means it may take some time to pay down your credit cards once you start using them to grow your business. 

This reality is why the IRS allows business owners to deduct credit card interest on their taxes. It’s considered a necessary part of operating and growing a successful business.

The IRS keeps an updated guide on what interest can be deducted for you to follow when filing your taxes.  

Self-Employed Individuals Can Only Deduct the Business-Related Amount

The IRS is clear that you cannot deduct personal expenses as a business owner, and this includes interest. If you are a self-employed individual who uses a credit card for both personal and business expenses, then you cannot deduct your whole interest payment on your taxes: you can only deduct the percent of your interest payment related to your business expenses. 

Sorting your personal and professional expenses can get complicated—and it gets even harder when you’re trying to determine how much interest to deduct. This is why opening a separate business credit card can help, so you can deduct the full interest amount and know that you’re following IRS guidelines. 

Watch the Tax Year for Prepaid Interest

The other main thing to look out for when filing your taxes is prepaid interest. If you prepay your interest to cover business expenses, then you need to track the tax year for which the interest applies. According to the IRS, “you may deduct in each year only the interest that applies to that year.”

The goal of this stipulation is to prevent people from double-deducting their interest. It creates a guide for when business owners can deduct interest that was paid before the item was paid off. This can also help your business to stay organized and know when to deduct interest and record it.  

Streamline Your Business Taxes With Good Bookkeeping

Tax season doesn’t have to be stressful as a good business owner. If you want to streamline the filing process and ensure you utilize all of the deductions possible, update your ledger with clear categories and organization throughout the year. This way, you can pull your expenses at the end of the year and deduct them from your taxes. 

Sunrise offers a free, self-service software tool to upload and sort your expenses. We even have an auto-categorization tool to organize your expenses for you. Check out our app and see how it can help your business to prepare for tax season.

 

The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice. All information, content, and materials available in this post are for general informational purposes only. Readers of this post should contact their attorney, business advisor, or tax advisor to obtain advice with respect to any particular matter.

About the author

Derek Miller
Derek Miller
Derek Miller is a writer specializing in entrepreneurship, small business, and digital marketing. His work has featured in sites like Entrepreneur, GoDaddy, Score.org, and StartupCamp. He’s currently the CMO of Smack Apparel, the content guru at Great.com, and a marketing consultant for small businesses.

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