Can You Write Off Interest on Business Credit Cards?

While personal credit card interest is not deductible, interest paid on business credit cards can often be written off, provided specific Internal Revenue Service (IRS) criteria are met. This deduction can help reduce a business’s overall tax liability. The key distinction lies in the purpose of the credit card use, which must be directly tied to business activities.

Qualifying for the Interest Deduction

Only interest paid on business-related credit card charges qualifies for a tax deduction. The credit card must be used exclusively for legitimate business purposes. If a credit card is used for personal expenses, the associated interest is considered personal interest and is non-deductible. This highlights the importance of maintaining a clear separation between business and personal finances.

The IRS allows deductions for interest when it is tied to “ordinary and necessary” business expenses. An “ordinary” expense is one that is common and accepted in your industry, while a “necessary” expense is helpful and appropriate for your trade or business. Interest on credit card charges for office supplies, equipment, travel, marketing, or professional services can generally qualify as deductible. This applies to all types of businesses, including sole proprietorships, LLCs, partnerships, and corporations.

Certain interest payments will not qualify for a deduction. Interest on personal purchases made with a business credit card is never deductible. Similarly, interest related to personal draws from the business or interest connected to tax-exempt income cannot be deducted. Late payment fees and penalties on business credit cards are also generally not deductible.

Mixing personal and business expenses on the same credit card can create complications during tax filings. If a balance is carried, accurately allocating interest between personal and business use becomes challenging. The Tax Cuts and Jobs Act (TCJA) also introduced a limitation on business interest deductions, generally capping it at 30% of a business’s adjusted taxable income. Small businesses with average annual gross receipts under a certain threshold may be exempt from this limitation.

How to Claim the Deduction

Once eligibility for the interest deduction is established, businesses must correctly report it on their tax forms. The specific form used depends on the business’s legal structure. Sole proprietors and single-member LLCs report business credit card interest on Schedule C (Form 1040), Profit or Loss From Business. On Schedule C, this interest expense is listed as an ordinary business expense.

Partnerships and multi-member LLCs report the deduction on Form 1065, U.S. Return of Partnership Income. S corporations use Form 1120-S, U.S. Income Tax Return for an S Corporation, while C corporations report it on Form 1120, U.S. Corporation Income Tax Return. The interest expense reduces the business’s taxable income.

Businesses typically operate on either a cash or accrual basis. Under the cash method, interest is deductible in the tax year it is actually paid. For example, if a business pays credit card interest in January 2025 for charges incurred in December 2024, the deduction would be taken in the 2025 tax year. Under the accrual method, interest is deductible in the tax year it is incurred, regardless of when it is paid. Most small businesses use the cash method, but the choice of accounting method impacts when the deduction can be claimed.

Required Records and Practices

Maintaining detailed and accurate records is fundamental for substantiating any business expense deduction, including business credit card interest. Businesses should keep monthly credit card statements that clearly itemize all charges and interest payments.

Beyond credit card statements, businesses need proof of the underlying business-related expenses, such as receipts, invoices, or detailed logs for purchases made with the card. Integrating accounting software can streamline this process, allowing for systematic tracking of deductible business expenses. This software can help categorize transactions and generate reports necessary for tax preparation.

Separating business and personal finances simplifies record-keeping and strengthens the legitimacy of deductions. Using a dedicated business credit card and a separate business bank account is highly recommended. This clear segregation prevents commingling of funds and makes it easier to demonstrate that expenses are solely for business purposes.

If a credit card is used for both business and personal expenses, meticulous record-keeping becomes even more important. Businesses must accurately track the percentage of charges that are business-related to justify the corresponding portion of interest deducted. It is advisable to avoid such mixed usage to minimize complexity and potential audit scrutiny.