If your tax bill is causing a lot of problems, it’s a good idea to look for new ways to reduce your amount. Is business credit card interest tax deductible?
One easy way to achieve this may be to increase your contributions to a tax-privileged retirement account, such as 401 (k), to reduce your taxable income.
You can also look for new deductions. However, please note that the 2017 Tax and Labor Act has almost doubled the standard deduction for most people, which reduces the likelihood that you’ll be able to list your taxes.
Still, the Internal Revenue Service (IRS) allows consumers to write off certain types of interest on their taxes each year, if they are eligible. For example, it is possible to deduct the interest paid on the mortgage to certain limits, when you specify the data, and you may even be able to deduct any interest paid on the student loan. You can also deduct investment interest from your net investment income as well as “interest incurred to obtain rents and royalties,” notes the IRS.
Can the interest tax be deducted from the credit card?
Unfortunately, many consumers will not be able to deduct the credit card interest paid.
If you were born in the 1960s or earlier, you may remember the time when you can deduct interest from your credit card in your tax return. It didn’t matter what you bought with your credit card, all interest paid could be deducted at the time of taxation.
The 1980s brought major changes to the Tax Code with the adoption of the Tax Reform Act of 1986. One of these changes was the elimination of interest on personal credit cards as a tax deductible cost. It is no longer possible to deduct the interest paid to credit card issuers for their daily credit card purchases. You can’t even deduct interest on your credit card if you used a credit card to buy it, which interest would have been deducted if you had used another debt instrument – real estate, home renovation or tuition fees.
Personal interest goes beyond the interest paid by credit cards. Also includes interest paid on car loans and other unpaid bills.
Exception for enterprises and self-employed
Although you cannot deduct interest on your credit card, you may be able to write off interest paid on business expenses charged to your card. This also includes the costs of doing business by contractors and self-employed persons.
You can still deduct this kind of interest, even if the credit card used is not a specific business card. Conversely, personal expenses associated with a business credit card are still considered non-deductible.
There are many other deductions that small businesses can take on their taxes. According to the IRS, business expenses eligible for deduction “must be both ordinary and necessary.” The institution notes that ordinary expenditure is “one that is widespread and accepted in a trade or enterprise,” while the necessary expenditure is “one that is helpful and appropriate for a trade or enterprise.” That said, expenditure does not have to be necessary to consider it necessary.