When are credit card interest taxes deductible?
Deducting credit card interest: When tax-time is right around the corner, we look for ways on how to reduce tax liabilities. As everybody uses credit card and many of them carry balance; the interest paid on it is quite considerable and you must be wondering whether the credit card interest is tax deductible or not. Let us see what type of credit card interest is deductible.
Credit card interest which is tax deductible
As per IRS rule, interest paid on credit card purchases solely made for business expenses qualify for tax deduction. You get tax deduction for the year in which you have paid tax. When we say credit card interest paid for business expenses doesn’t mean that the expenses were made using the credit card must be designated as business credit card by issuer of the card. What it requires is that you have valid proof to show that it was business expenses in real sense; you need to keep receipts and proper record of it. It is a good practice to make business expenses with business card.
Credit card interest which is not tax deductible
Credit card interest paid for personal expenses is not tax deductible. Though interest paid on personal loan such as auto loan, appliances loan, home improvement loan, college education loan or some other loan is tax deductible, if you pay it using credit card, it is not tax deductible at all. However, interest paid on mortgage loan is deductible.
Partial tax deduction
Things get confusing when you make expenses partly for business and partly for personal uses with the same credit card. Interest paid on part of business expenses will be deductible; whereas interest paid on personal expenses won’t get deducted. But if you mingle the expenses frequently, it becomes difficult to keep track of the expenses and you will find it hard to calculate interest paid for business expenses separately.
Another thing you have to keep in mind is that interest paid on personal expenses made through a business credit card is not tax deductible too.
Tax Deduction Tips
- Interest paid on individual home loan, student loan and margin interest on investment are tax deductible. Remember that except home equity loan, you won’t pay interest using credit card in order to get tax deduction.
- Fees and charges paid on business accounts such as annual credit/debit card fee, transactions charges, maintenance fees etc are tax deductible.
- Self employed people get certain deductions such as home utility cost, mileage for work related travel etc.
Follow the tax deduction guidelines and consult a tax professional if needed to minimize the tax to be paid.
More Related Queries:
- IRS interest deduction rules
- Can you claim interest on credit cards?