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Top credit cards can give you access to substantial rewards, sign up bonuses and a convenient way to pay, but may also bring along some unwanted fees.
If you’re an individual looking to deduct your credit card fees to boost your tax refund this year, you won’t have much luck — personal credit card use is almost never eligible for a deduction come tax season.
Most credit card fees are deductible for businesses, however, so if you’re a small business using a business credit card you can likely deduct those fees on this year’s return.
Are credit card fees tax deductible for individuals?
Credit cards come with a variety of fees for their typical use, some developed to penalize you and some simply as a membership fee to hold the card. Annual fees, foreign transaction fees, late fees, over-limit fees, balance transfer fees and other costs are often faced (or hopefully avoided) by credit card holders. Unfortunately for any travel, rewards, or cash back card carriers, these popular fees won’t be tax deductible when using your personal, non-business card. On the bright side, many common credit card fees can be avoided altogether with the right steps.
Which credit card fees are tax deductible for businesses?
Small businesses have many more opportunities to earn themselves some money back by properly doing their taxes. The IRS has deemed that business expenses that are both ‘ordinary’ and ‘necessary’ qualify as being deductible; and small businesses have several ‘ordinary’ and ‘necessary’ fees.
If you’re just starting up sales and are considering whether to welcome credit cards as a form of payment, you probably know that a processing company will hit you with a fee for every credit card swipe, insertion or online purchase you accept. According to the IRS, any business that faces fees from a credit card company for the service of processing charges is eligible to deduct these fees from their taxable income. Although the percentage taken may be small, the charges will accumulate over time and are well worth looking into when doing your bookkeeping.
Small business owners are capable of deducting the most charges come tax time. If you fit into this category, it’s likely you’ll qualify for a write off depending on the annual fees, late fees or several other fees imposed by your card provider. These charges are determined ‘ordinary’ and ‘necessary’ to routinely run your business, making them eligible for deductions.
Are personal expenses on a business card tax deductible?
You don’t need a dedicated business credit card to deduct business-related credit card fees. However, it certainly saves you time sorting through your books trying to determine the percentage of expenses on the card are for business purposes, and therefore the percentage of the fee that is tax deductible. These calculations are essential when deducting fees from a joint personal and business use credit card, as it’s illegal to deduct personal expenses from your business income, whether accidentally or otherwise.
As a general rule, you should keep personal expenses separate from your business expenses. You wouldn’t want business transactions crossing over into your personal finances, so it’s best practice to keep the two apart. Another great tax benefit offered to business card holders: interest paid on your business credit card is tax deductible.