Are Credit Card Fees Tax-Deductible?

It can be a savvy financial move to try and accumulate as many legal tax deductions as possible. Tax deductions can provide a way for you to offset some of your income for tax purposes. While credit card fees and interest on a card used for personal expenses aren’t tax-deductible, fees and interest on a card used for business expenses may be. Read on and we’ll break down what the IRS has to say on the matter.

Is credit card interest tax-deductible?

Here’s the good news — annual fees and some other credit card fees, on business credit cards are tax deductible, according to guidelines from IRS Publication 535. In order for an expense to be deductible, it must be “both ordinary and necessary,” the IRS specifies. Here’s how the agency defines such expenses:

• Ordinary expenses are “common and accepted in your industry”
• Necessary expenses are “helpful and appropriate for your trade or business”

Interest on credit card expenses that are used for business purposes will generally meet these guidelines, since many of the daily business transactions you make will be paid for with a credit card.

Are credit card fees tax-deductible?

In addition to credit card interest, the fees that come with business credit cards are generally tax-deductible, as long as they are used for business purposes. Here are a few common credit card fees that may be tax-deductible:

• Annual fees
• Balance transfer fees
• Foreign transaction fees
• Convenience fees charged for using a credit card

Are personal expenses on a business credit card tax-deductible?

It’s crucial to keep business and personal expenses separate — so whether you’re using a small business credit card or a consumer credit card, make sure to have a dedicated card for your business spending. If you place your personal expenses on your business credit card, it may disqualify you from deducting fees and interest when filing taxes.

Plus, keeping business and personal expenses on separate cards enables better recordkeeping, which will be important if you ever face an audit. And many business cards offer tools to help with record-keeping, like downloadable purchase records and the ability to connect your card with popular bookkeeping software.

Should you use a business credit card for tax purposes?

It’s important to note that you shouldn’t necessarily open a business credit card with a high annual fee just because it might be tax-deductible. You should still conduct a careful analysis to determine whether the rewards and benefits make the card worthwhile depending on what your business needs.

Still, there are many reasons to sign up for a business credit card if you have a qualifying business. The ability to potentially deduct credit card fees and interest is one reason, but it’s also useful to be able to separate personal and business expenses. It can make sense to pay an annual fee for a business card if you need certain premium benefits, such as the airport lounge access offered by the The Business Platinum Card^® from American Express . There are also business credit cards that come with no annual fee. Check out our list of the best business credit cards to find the right one for you.