Running your own small business comes with its own financial hurdles. You have expenses that are both expected and unexpected, as well as the inevitable credit card bill. Financing your operation isn’t always the easiest thing to do—nor is it the cheapest. More often than not, your business credit card ends up being your best bet to keep the ship floating. But that also means you’re likely to come up against business credit card fees, which can add up.
With tax season upon us, you might wonder if business credit card fees are tax deductible. After all, who doesn’t want to make the most of their deductions? The good news is that most business credit card fees are tax deductible, which can put money back in your pocket after you file your yearly return. This can help take the sting out of business credit card fees, even if only slightly.
But even though business credit card fees are tax deductible for businesses, that doesn’t always mean that they’re the best way for you to get some money back at the end of the year. Let’s break down whether or not your business credit card fees are tax deductible, and when it makes sense to add them to your return versus finding savings elsewhere.
Understanding How Business Credit Card Fees Work
Before we dive into the nitty-gritty about how credit card fees are tax deductible for businesses, let’s look more closely at how business credit card fees work. Some fees are inevitable, whereas others are avoidable with the right spending strategies.
Annual Credit Card Fees
Usually, the more feature-rich your business credit card is, the more you have to pay to keep your account open. This is an unfortunate—albeit unavoidable—reality for most small business owners who want to maximize their purchasing power with cash back or points on their card. There are plenty of business credit cards with no annual fees, but those tend to be more limited in terms of the perks they offer to clients.
You’ll have to pay your annual credit card fees in order to keep your account open and in good standing. This is on top of any other incidental fees you might come up against, such as late fees or cash advance fees. You might be able to get out of paying those, but likely won’t have the same luck with your annual fee.
Mistakes happen. Sometimes you can’t make a credit card payment, or find that there was an account error that prevented your auto-pay from going through. Any time you fail to pay your card on time, or in accordance to the terms of your account, you’re likely to face a late fee on top of your existing overdue payment.
Late fees are unfortunate, for sure, but not entirely avoidable. If you have good credit, a positive relationship with your lender, and can make the late payment, you may be able to have these fees waived on a case-by-case basis. Otherwise, you’re on the hook for a late fee—typically within the $20-$40 range per incident.
Interest charges aren’t fees, strictly speaking, but they can also add up fast. Any time you carry a balance on your card (and don’t have an introductory 0% APR business credit card), you’re paying interest on the money you’ve borrowed.
That’s how credit cards work—your bank provides you with a set amount of money you can borrow to make purchases with your card in exchange for interest payments on anything you can’t pay back. It’s always best to pay off your card in full and avoid interest charges whenever possible.
Businesses get charged a swipe fee whenever customers use their own credit cards to make a purchase. This fee is typically a few cents per transaction, but can add up quickly over time. Swipe fees are how credit card companies make money on transactions, and help pay for the services that make it easier for your customers to pay without using cash. For the most part, you can’t avoid them—you simply have to acknowledge that they’re one of the many costs of doing business.
Cash Advance Fees
Many business credit cards offer cash advances to their clients, which allows you to access cash quickly against your monthly credit limit. A cash advance can be an easy way to get money in a pinch, but at a steep price. Depending on your situation, however, this might be your best (or only) option—but you’ll want to exhaust all other options before doing so, as the fees associated with cash advantages can be fairly high.
Which Business Credit Card Fees Are Tax Deductible?
The good news is that most—if not all—business credit card fees are tax deductible. That may come as a surprise, but each of these fees are considered business expenses, which means you can account for them when adding up your tax bill at the end of the year. You might not think of business credit card fees as the typical kinds of expenses you might incur every year, but in the eyes of Uncle Sam, there’s no difference between these expenses and things like car mileage or accounting expenditures.
Each of the business credit card fees we mentioned above is eligible for inclusion in your business tax returns. You can account for late fees, cash advance fees, and annual credit card fees just like you would with any other expense. That’s great news if you rely on your business credit card to make purchases, or to collect purchases from your customers. In this case, there’s no delineation between expenses paid for in cash than those paid for with a card. So long as your expenses are valid and can be supported with documentation, they’re fair game.
There’s a catch, however: You’ll have to have a business credit card in order to take advantage of these tax deductions. If you’re using a personal credit card to pay for business expenses, you’re out of luck. More on that below.
Which Credit Card Fees Aren’t Tax Deductible?
We always recommend keeping your business and personal finances separate. That’s great advice for any entrepreneur in just about every situation—the more intertwined the two are, the more susceptible you are to liability, accounting, and tax issues. You’ll want to have a strong division between your personal money and your business finances, lest you mix up the two come tax time.
This is particularly true with regard to business credit card fee tax deductions. Any fees you incur on your business credit card are fair game for tax deductions. But if you incur fees on your personal card—even for business-related purchases—you won’t be able to claim the same deductions.
The same advice goes for making personal purchases on a business credit card. You should never use a business card for your own personal needs, as this may violate state and federal laws depending on the specifics of your usage. That, and doing so makes it tougher for you to accurately account for business expenses. Spare your accountant (and lawyer!) the headache of separating these kinds of purchases ahead of time. You’ll thank yourself when filing your tax return.
When You Shouldn’t Seek Business Credit Card Fee Tax Deductions
Just because you can deduct your business credit card fees doesn’t always mean that doing so is the best way for you to put more money back in your company’s coffers. In fact, you’re usually better off finding other ways to minimize your business credit card fees. Or, better still, finding business credit cards that have low (or no) fees whenever possible.
Credit cards with no annual fee are a great option for new businesses, or for companies that don’t expect to use cards often enough to make the tradeoff for perks and points worth it. If you’re just starting out, opt for a card with no annual fees—even if it means that you’ll get fewer benefits. You might miss out on promotions and perks, but you’ll also save money on fees in exchange.
Alternatively, if you know you’re going to take advantage of credit card perks and are willing to pay an annual fee in exchange, seek out a business credit card that comes with a 0% APR introductory rate. These cards are great for small businesses that need to make purchases with credit and can pay off balances before the promotional rate period expires. When used properly, promotional APR credit cards can function as interest-free loans.
If these cards aren’t right for you, be sure to pick a business credit card that rewards you for certain kinds of purchases. For example, if you know you’ll need to purchase office supplies or gasoline throughout the year, opt for a card that gives you additional points back every time you swipe.
Last but not least, consider asking your credit card provider for a fee waiver in lieu of filing a deduction at the end of the year. If your account is in good standing, you’re likely to get late fees waived so long as you don’t make too many mistakes in the future. Getting these fees waived when they happen is often more beneficial than claiming them as expenses later on.
The Bottom Line on Deducting Business Credit Card Fees
Small business owners should always seek out ways to get money back as they pay to keep their operations humming. Deducting credit card fees can be a great—if not entirely well-known—way to do so. So long as you follow a few simple guidelines, and make sensible decisions about how and when you use your card, you can put yourself in a good position to get money back on what you’ve had to spend. But with all things small business, you should make sure you keep a keen eye on your finances and stick to a strategy that works for you.