Both personal and business credit card interest is tax-deductible for business expenses because credit cards are a form of business debt that meet the requirements for interest deductions according to IRS Publication 334, where:
- You are legally required to pay back the debt, meaning you can’t deduct interest paid on a spouse’s or another party’s card.
- You and the lender both plan on the debt being repaid.
- There is a debtor-creditor relationship between you and the lender.
Here are the details of when you’re able to deduct interest on personal and business credit cards, and how to know if you’re limited on how much you can deduct. But before making any deductions, always talk to a licensed CPA to verify.
Deducting Interest on Personal Cards
You can’t deduct interest on personal credit card charges even if they’re on a business credit card, because of how you’re required to trace interest expense to each individual charge and its purpose. This means that if you charge $10K for business and $2K for personal in January, you can only deduct the interest you pay on the $10K portion.
This is one of the reasons most accountants, bookkeepers, and financial experts recommend separating personal and business finances, including having a dedicated business credit card. In the case of a tax audit, you may also be required to prove the expenses, and having separate accounts makes this simpler so you do not have to dig through and separate each line item in your personal credit card statements. On top of needing to split the percentages, there are requirements that define how much can be deducted.
Limits on Credit Card Interest Deductions
There’s no limit to how much credit card interest for business expenses you can deduct as long as you meet the IRS’s “gross receipts” cap (this changes each year, so check the latest IRS guidance).
If your business exceeds the small business revenue caps, then you’re limited in the total amount of deductible interest from credit cards, small business loans, and all other types of debt, calculated using the Section 163(j) formula on Form 8990. But don’t worry — this is easier to do than it sounds.
The formula is:
Max Interest Deduction = Business Interest Income + 30% of Adjusted Taxable Income + Floor Plan Interest
- Business interest income is any income you get from normal daily operations, like interest charged on late invoice payments.
- Floor plan interest is a special type of interest paid mostly by vehicle and equipment dealers, so if you don’t know about it, you likely don’t have it for your business.
If your business had $40,000 in interest income, $10,000,000 in adjusted taxable income, and no floor plan interest, then the max interest deduction is calculated like this:
Max Interest Deduction = $40K + 30% × $10M + $0 = $3,040,000
Credit card interest is tax deductible as long as it’s for business expenses, and this includes both personal and business credit cards. Just make sure to keep detailed and accurate records if you mix business and personal purchases on the same card, to make it easier to trace the interest back to each individual purchase. And always talk to a licensed CPA before making any tax deductions and have them calculate the amount. They’ll know whether the interest from the expense qualifies as a business expense and is tax deductible.
SmallBusinessLoans does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisors.
