Is the Charge card Interest Tax-Deductible? – Credit Sesame

With tax-time right around the corner, we're all looking for ways to reduce our liability to Uncle Sam. For consumers who have a balance, credit card interest can be a significant expense all year round. Is credit card interest a line item we are able to use to lower our taxable income? It depends.

When credit card interest is tax deductible

On any credit card which is used solely for business purposes, the interest is tax deductible. Each purchase must qualify as a business expense underneath the IRS's rules. Deduct purchases around the purchase is made. Deduct interest in the entire year you have to pay it.

When credit card interest isn't tax deductible.

Credit card interest incurred for personal expenses isn't tax deductible. The government refers to this as “personal interest” while offering no tax benefit.

Interest paid on a personal car loan, on appliances or furniture, on medical procedures and on person-to-person loans can also be considered personal interest and isn't deductible. Interest paid on the mortgage, however, is deductible. And interest for an auto loan that is strictly for business me is also deductible.

When it gets messy

Like every other expense, if it's partly for business and partly for private use, charge card interest is deductible in the same proportion because the amount used for business purposes. For instance, for financing and use 75 % of the funds to purchase business equipment and 25 percent of the funds to take a family vacation, 75 % of the interest rates are deductible. On the credit card, a more common scenario is that a percentage of purchases are business-related along with a percentage are personal.

If you apply the same charge card for personal and business use, you're legally entitled to deduct the interest paid on business purchases. But a taxpayer who regularly comingles accounts and expenses have a hard time calculating the right amount of great interest to deduct without fairly advanced math skills. Interest on personal expenses charged to a business card isn't tax deductible just by virtue to be on a card.

More tax deduction tips

Deductible non-business interest. The IRS allows individuals to deduct the eye paid on home loans (mortgages and home equity loans) and student loans. Also, interest paid on money borrowed for that acquisition of investment property is tax deductible.

Fees and charges. The annual fee, ATM fees, foreign transaction fees, maintenance fees and lots of other bank and credit card fees will also be tax deductible, as long as the account is used for business purposes.

Other business deductions. Self-employed people can deduct numerous expenses that employed taxpayers cannot, including mileage back and forth from work-related locations away from the office at home, and even a area of the home’s utility costs.

One final tip. The charge card doesn't have to become designated a company card through the card provider in order to become qualified as a company account within the eyes of the IRS. The consumer can call any charge card a business card. Keep receipts in case of an audit, and again, use the card only for business expenses.

Talk to some licensed tax professional by what deductions work for you.