Are Business Credit Card Payments Tax Deductible
Dec 26, 2023
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.
KEY TAKEAWAYS
- Credit card fees are not deductible for individuals and are deductible for businesses.
- Businesses can deduct all credit card fees as well as finance charges.
- Businesses are eligible to deduct credit or debit card processing fees associated with paying taxes, but individuals are not.
Are Credit Card Fees Tax-Deductible?
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.
Individual Deductions
The Tax Cuts and Jobs Act (TCJA) was signed into law by former President Trump in December 2017 (with the majority of its clauses taking effect in 2018). 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.1
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. Due to the TCJA standard deductions for U.S. taxpayers increased substantially.2
Internal Revenue Service. "Itemized Deductions."
For the tax year 2022, those deduction amounts are:34
- $12,950: single taxpayer (increasing to $13,850 for 2023)
- $12,950: married taxpayer filing separately ($13,850 for 2023)
- $19,400: head of household ($20,800 for 2023)
- $25,900: married taxpayer filing jointly ($27,700 for 2023)
- $25,900: qualifying widow(er) ($27,700 for 2023)
Credit card fees can be a pain. However, the good news is that business-related credit card fees are tax-deductible. Credit card fees are considered part of the cost of doing business. As such, they’re classified as business expenses.
On the purchasing side, deductible credit-card-related charges include interest expenses, balance transfer charges and cash advance fees. On the selling side, all credit card processing fees, including percentage-of-sale fees, per-transaction fees, chargeback fees, PCI compliance fees and more are deductible.