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Both individuals and businesses have the potential opportunity to deduct expenses from their gross income to lower the amount of money they pay in annual taxes to the Internal Revenue Service IRS.
The provisions and deduction procedures for individuals and businesses are different so it is important to understand which ones apply. In general, pretty much anything pertaining to a credit card is not tax-deductible as a personal itemized deduction but is tax-deductible for a business.
The short answer is, it depends. It largely depends on whether any credit card fees are incurred for business purposes or if the card was for personal use. Below are details for each type of situation. The TCJA was the biggest overhaul of the tax rules in 30 years. For individuals, it wiped out many of the miscellaneous itemized deductions taxpayers had used in previous years.
Some of the most prevalent changes eliminated expenses taken by individuals for business involvement, such as vehicular costs. Individuals looking to take advantage of itemized deductions do so on Schedule A.
For Schedule A itemized deductions to be worthwhile, they must exceed the standard deduction given to all taxpayers. With these standard deductions, the need for itemized deductions became obsolete for most taxpayers. Regardless, finance charges and annual fees for credit cards were never eligible for itemized deductions. Prior to , taxpayers could deduct transaction costs for credit and debit card payments made to the IRS.
After the TCJA these deductions were also no longer allowed. Tax deductions for businesses are another story. Nearly any business credit card fee or credit card company charge incurred by a business through the use of a credit card has been and still is eligible to be deducted as a business expense. Depending on the type of business, a company will either file Schedule C or Form Corporations file Form while all other businesses use Schedule C.
Allowable deductions for businesses are detailed in IRS Publication The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site.
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This content is powered by HomeInsurance. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions such as approval for coverage, premiums, commissions and fees and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way. Have you racked up a lot of credit card debt? If you think that you will get a tax break on the interest you pay, based on the assumption that credit card interest is tax-deductible, you are only fooling yourself.
There was a time when credit card interest was tax-deductible, but that was way back in the s, before the IRS wised up. Such a deduction may have also encouraged people to speculate in investments with their credit cards , considering that the tax deduction on the interest paid would have effectively lowered their costs. With the Tax Reform Act of , the government stopped allowing a tax deduction for consumers on credit card interest payments.
According to a study by Victor Stango in the National Tax Journal , by this maneuver resulted in the lowering of credit card debt by about 14 percent on aggregate than it would have been without the change. The government also frowned upon auto loan debt and the change took auto loan debt about 9 percent lower.
However, mortgage loan debt, which is still eligible for favorable tax treatment on interest you pay, had gained more than 1 percent by Currently, the government allows a deduction for interest paid on student loan debt, mortgage loan debt and business loans, among others. The IRS spells out that the following types of interest are not deductible for tax purposes:.
If you run a freelance business or are a gig worker—maybe driving for Lyft or Uber or delivering for DoorDash—and take on a loan for any genuine business purpose, maybe on your credit card, the interest you pay will be tax-deductible.
If you use your credit card to pay for a business expense that is also partly personal, you can only deduct that part of the interest paid that relates to the business portion of what you spend. It may be better to have a credit card that is solely tied to your business use to avoid any complications. Even though credit card interest is not tax-deductible, you can still take some steps to reduce the amount you pay in interest charges. For one, you could consider transferring any balance you carry on your card to another balance transfer card that comes with a promotional 0 percent interest rate.
While this promotion goes on, you will not incur any interest charges on the debt. However, you may be able to deduct credit card interest paid on qualified business purchases, no matter what type of credit card you use. Consult with a tax professional about your tax situation to get specific advice about whether the interest you paid is tax-deductible. Internal Revenue Service. Accessed March 22, Actively scan device characteristics for identification. Use precise geolocation data.
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