The answer is NO if the credit card was for PERSONAL USE but the answer is YES if the credit card was for BUSINESS USE. Below we have detailed the three different scenarios that you likely fall under if you have made credit card interest payments.
Solely For Personal Use
Simply stated, NONE of the interest payment is deductible.
Solely For Business Use
Yes, you can deduct the ENTIRE interest payment as a business expense.
For BOTH Business & Personal Use
Now it gets a little complicated. If a credit card is used for both business and personal purposes then you must allocate the interest payment by following a process similar to the one detailed below.
Allocating the Interest Payment
1) Add up your credit card business & personal expenses separately
2) Divide your business expenses by your total expenses (business + personal)
3) If 70% of your total expenses were business expenses then you can deduct 70% of your total interest payments.
Is it Worth Your Time to Deduct
If you used a credit card for business & personal purposes, it may not necessarily be worth your time to claim the interest tax deduction related to the business and sift through the details to figure it out. For instance, if your total interest charge for the year was $100, then you likely would only be saving $20 to 30 in taxes. If your interest charges were a few thousand dollars, it may be worth your time. It really depends on your specific situation.
What Falls Under the Interest Category?
A lot of credit card companies have multiple names for interest: Late Fee; Finance Charge; Late Penalty. All of these names fall under the category of interest expense.
You Must Have Paid the Interest To Deduct It
This may seem obvious but please keep in mind that you cannot deduct the interest expense unless the business paid it. If it wasn’t paid or someone else paid it, you cannot claim it as a tax deduction.
Related Articles
->Are You Planning to Pay Your Taxes With a Credit Card?
->I Got My Tax Refund…I’m Rich Again…Not So Fast Buddy
->Choosing the Right Tax Preparer For Tax Help
->Year End Tax Planning Tips You Don’t Want to Miss
