Can You Write Off Business Credit Card Interest?

Interest paid on business credit cards can be a deductible expense, reducing a business’s taxable income. This deduction is subject to specific rules and requirements, which business owners must understand to manage finances and comply with tax regulations.

Understanding Deductible Business Interest

For interest to be deductible, the underlying debt must be incurred for a business purpose. The IRS allows businesses to deduct interest on legitimate business purchases if it is “ordinary and necessary” for operations. An ordinary expense is common and accepted in an industry, while a necessary expense is helpful and appropriate for the business. Business credit card interest qualifies if it arises from expenses directly related to business operations, such as purchasing office supplies, inventory, or paying for business travel. The deduction applies only to the interest portion of payments, not the principal amount. Personal interest, such as that from living expenses, is not deductible. The deductibility of interest is tied directly to the debt’s purpose.

Separating Business from Personal Interest

Clearly distinguishing between business and personal expenses is essential for proper interest deduction. Commingling funds can complicate tax reporting and lead to disallowed deductions. Only the portion of interest directly attributable to business purchases is deductible. A dedicated business credit card is a practical method to ensure clear separation, simplifying tracking and substantiating business expenses. Maintaining separate bank accounts for business and personal finances further reinforces this distinction. When a single credit card is used for both business and personal expenses, meticulous record-keeping is essential. Every transaction must be tracked to accurately allocate interest between business and personal use. Without detailed tracking, determining the exact deductible interest amount can be challenging, increasing audit risk.

Essential Record Keeping

Proper documentation is important to support any claimed business interest deduction. Business owners should retain credit card statements showing the interest paid over the tax year. These statements serve as primary evidence of interest charges. Beyond statements, detailed records of all business transactions are necessary, including invoices, receipts, and expense logs that link each purchase to its specific business purpose. If a credit card is used for both business and personal expenses, documentation proving the method of interest allocation is also required. Records should be maintained for at least three years from the tax return’s filing date or its due date, whichever is later. For significant income underreporting, the retention period may extend to six years.

Reporting Interest Deductions

Once the amount of deductible business credit card interest is determined and supported by records, it must be reported on the appropriate tax form. The specific form depends on the business’s legal structure. Sole proprietors and single-member LLCs report business expenses, including interest, on Schedule C (Form 1040), Profit or Loss from Business, typically on line 16b. Partnerships and multi-member LLCs report income and deductions on Form 1065, U.S. Return of Partnership Income, with interest expense on line 15. Corporations use Form 1120, U.S. Corporate Income Tax Return (C corporations), or Form 1120-S, U.S. Income Tax Return for an S Corporation (S corporations). Both forms have specific lines for reporting interest expense as a deduction.