a question from a reader…
Q: Can you take a deduction for credit card interest?
A: Let’s be honest – the U.S. tax code is a messy nightmare and it’s not always obvious what’s deductible and what’s not. We all know mortgage interest can be deductible, but is credit card interest tax deductible too? Well unfortunately, the answer is usually no, but sometimes yes (I’ll discuss in a moment). Believe it or not, credit card interest payments were tax deductible in the past… then on Oct. 22, 1986 President Reagan signed a bill that eliminated interest deductions for consumer loans, which included cars, credit cards, etc.
However here’s a possible exception for claiming credit card interest on taxes but check with a tax professional to find out for sure:
Qualified business expenses?
Do you work for yourself? Do you own a small company? If you have made interest payments on qualified business purchases made with a credit card, then you might be able to deduct the interest for those – check with a tax professional or your small business tax software for the answer.
However, many small-business owners may have commingled their finances by using a single credit card for both personal and business purchases. If that’s the case, how on earth are you going to be able to calculate the interest that corresponded to your business expenses? Remember, if you don’t pay your balance in full each month the credit card interest begins accruing from the date of each purchase, which would make finding the answer even more perplexing. Then of course, minimum payments would have to be factored in somehow (and I don’t even know how you that would be done).
In short, if you are mixing personal and business expenses on a single credit card, unfortunately I think it might be next to impossible to write off the interest from the business expenses (unless your accountant knows how to do it). I personally would never try to deduct the interest if I commingled, because how would I defend my calculations in an audit?
Now you know why it’s so important to have a credit card solely dedicated to business. Need one? Then check out my credit card reviews!
Updated October 2014