If you’re a budding business owner or have a side hustle in addition to your day job, you could be missing out on important tax deductions related to your credit card.
Sure, you can deduct office supplies and even business-related travel that you charge to your card, but is credit card interest tax deductible? You bet it is — and much more, too.
There are three main types of credit card fees that are fully tax deductible:
- Interest charges
- Annual membership fees
- Credit card swipe fees
One thing to note is that these credit card fees are only tax deductible if they’re related to business purchases. But as long you have a freelance business or side job, these fees can be deducted on your annual tax return if you qualify.
If you have business expenses and use a credit card to make the purchases, these tax savings will help you keep more of your hard-earned money, allowing you to contribute more to paying off student loans or other financial goals.
While some credit card fees are tax deductible, whether or not you qualify for them depends on your filing status and other variables. It’s always a good idea to consult with a tax expert or CPA who knows your personal situation.
Here’s what you might be able to write off on next year’s taxes.
1. Is credit card interest tax deductible?
We all know that credit card interest can be very high, possibly eating into your business profits. But any interest you’ve paid on purchases related to business expenses is tax deductible.
The best way to keep track of this is by using a personal credit or debit card for household bills and other costs, while using a business credit card for work-related purchases. Any interest that’s billed to your account, whether it’s for purchases or cash advances, is allowed as a tax deduction on your Schedule C.
In the past, interest paid on all types of credit card purchases were tax deductible. However, this has since changed after the Tax Reform Act of 1986, which now only allows credit card interest as a tax deduction if it’s related to business expenses.
2. What about annual credit card fees?
Many premium credit cards come with an annual membership fee in order to access the benefits and other perks that come with being a cardholder. These charges usually range from $49 to $99 for basic cards, but can be as much as $450 per year for platinum credit cards.
The good news is that this annual fee can be taken as a tax deduction on your tax return, as long as the card is used to make business purchases. Any personal credit cards that come with an annual fee are not tax deductible.
3. Deduct those credit card swipe fees, too
As someone with a side gig or full-time business, you may pay credit card “swipe fees” in order to receive payments from clients or vendors. This is all part of doing business, so it’s a tax deductible expense.
You can calculate the yearly credit card swipe fees by logging into your credit card merchant account and tallying up the fees taken out of each transaction. This swipe-fee tax deduction can also include the percentage that PayPal takes out for receiving payments related to business sales.
Be sure you print and save the financial records that prove the credit card swipe fees you paid were due to funds received in exchange for sales or services you provide as a business owner.
Do you qualify for these tax deductions?
Is credit card interest tax deductible? It sure is, but you’ll need to confirm your eligibility with a tax expert. Talk with someone who understands your specific situation before determining whether or not fees like credit card interest are deductible in your case.
Now that you understand how to write off certain credit card fees, you can save even more money to put toward your student loan debt repayment goals.