According to the IRS, annual fees, convenience fees and even interest related to your small-business credit card can be considered deductible expenses.
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Can I deduct credit card fees from my small business taxes? – David
That is a great question. IRS Publication 535, which covers business expenses, discusses many types of expenses, but not this one, so I asked two accountants for their take.
Generally speaking, the IRS website says, “To be deductible, businesses expenses must be both ‘ordinary’ and ‘necessary.’”
- An expense that’s “ordinary” is common and accepted in your trade or business, according to the IRS.
- One that’s “necessary” is one that is “helpful and appropriate” for your trade or business.
Are card fees ‘ordinary’ and ‘necessary’ business expenses?
“These kinds of fees would fall under ‘ordinary and necessary’ business expenses,” said Gene Marks, CPA, of The Marks Group PC in Philadelphia.
“Nowadays most businesses use credit cards to pay for purchases, big and small,” noted Marks. “There are a growing number of companies that are only accepting this form of payment over checks and cash. As such, having a credit card is not only ordinary but necessary for many, and the costs for a card’s membership fees are part of that ordinary and necessary expense.”
Paul Gevertzman, CPA, tax partner at Anchin, Block & Anchin LLP, had a similar interpretation.
If it’s a card used for business, Gevertzman said, “then the annual card fee would be under the ordinary and necessary category.”
This would come under general IRC section 162 for a trade or business, according to Gevertzman.
“I am assuming that the annual fee would not be considered a disguised interest charge, which would likely still be deductible for a small business but in a different category,” he added.
Convenience fees can also be deducted
Let’s look at one other type of fee you may pay when using credit cards: Convenience fees. If you use the card for business expenses, you are allowed to deduct convenience fees you are charged for doing so.
Here’s what the IRS says in Publication 535 (under Miscellaneous Deductions):
“Credit card companies charge a fee to businesses who accept their cards. This fee when paid or incurred by the business can be deducted as a business expense.”
Tip: December is a great time to review your deductible expenses for the year and charge any last-minute deductible expenses to a business rewards credit card. Read “How to plan year-end business spending to increase deductions, rewards” to learn more.
Can business-card interest be deductible, too?
What about interest on your credit cards used for business? The IRS says business interest can be deducted. It’s defined as “an amount charged for the use of money you borrowed for business activities.”
Here’s what Publication 535 says:
“You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your trade or business. Interest relates to your trade or business if you use the proceeds of the loan for a trade or business expense. It does not matter what type of property secures the loan.”
According to the IRS, you can deduct interest on a debt only if you meet all the following requirements.
- You are legally liable for that debt.
- Both you and the lender intend that the debt be repaid.
- You and the lender have a true debtor-creditor relationship.
If you are partially liable for a debt, you can deduct your share of the total. For instance, if you and your brother are business partners and you are liable for 50 percent of a note, you can deduct your half of the total interest payments as a business deduction, the IRS says.
Sifting through documents like Publication 535 is not as entertaining as reading the latest Stephen King novel, but it’ll save you money.
If you can’t bring yourself to do it, make sure you have a good accountant guiding you, so you’re not overpaying Uncle Sam. Thanks again for a great question!