If you’re like most people, credit card interest and taxes are two things you don’t want to pay. Luckily, paying one may help you pay less for the other. Credit card interest and fees are tax-deductible in some cases. That means every dollar you pay in credit card interest might reduce a dollar of your taxable income.
If that sounds too good to be true, there is a catch — credit card interest and fees are typically only considered tax-deductible if they are legitimate business expenses. If you don’t run a business, or the interest and fees were not incurred in the operation of a business, you generally won’t be able to deduct them on your tax return.
How Credit Card Interest Works
When you make a purchase with a credit card, you don’t have to pay for it right away. Instead, you are borrowing the money for the duration of your statement (usually one month). At the end of your statement balance, you must make at least a minimum payment. But if you don’t pay the full statement amount, you will be charged credit card interest on any outstanding balance. Charging this interest is one way that issuers fund credit card perks and benefits like credit card rewards.
💡 Quick Tip: When choosing a credit card, look for one that aligns with your existing spending habits. For example, some cards offer rewards on airline purchases for frequent travelers, while others, like the SoFi Credit Card, offer cash-back rewards on all purchases.
Is Credit Card Interest Tax Deductible?
Whether or not credit card purchase interest charges are tax-deductible depends mostly on whether it is personal or business credit card interest.
Business Credit Card Interest
Business credit card interest may be tax-deductible in certain situations. Generally speaking, in order to deduct any expenses, they must be incurred in the regular operation of the business. The IRS does not have requirements about what type of credit card is used, as long as the interest is incurred on business expenses.
You may be able to deduct credit card interest on a personal credit card used for business purchases. However, most credit card agreements prohibit the use of personal credit cards for business purposes on a regular basis.
Not surprisingly, you cannot typically deduct credit card interest on personal expenses charged to a business credit card. And if you pay for personal and business expenses with the same credit card, you may not be able to deduct the full amount of interest. Consult with your accountant or tax advisor if you have questions about what can and cannot be deducted.
Personal Credit Card Interest
Personal credit card interest is not tax-deductible under any circumstances. You cannot deduct interest that you pay for personal expenses on a credit card. That’s one more reason to always pay your credit card statement in full, each and every month. That way you aren’t charged any credit card interest.
Recommended: How to Do Taxes as a Freelancer
Are Credit Card Fees Tax Deductible?
Just like credit card interest, the deductibility of credit card fees largely depends on whether they are for business expenses.
Business Credit Card Fees
Credit card fees that are incurred as business expenses are generally considered deductible. This includes credit card annual fees, overdraft fees, foreign transaction fees, late fees, and balance transfer fees. As long as the credit card is used for business purposes, any fees charged by the credit card issuer will be tax-deductible.
💡 Quick Tip: When using your credit card, make sure you’re spending within your means. Ideally, you won’t charge more to your card in any given month than you can afford to pay off that month.
Personal Credit Card Fees
In contrast, personal credit card fees are not generally considered deductible. Any fees that you are charged by your credit card issuer that are not business expenses cannot be deducted from your taxable income.
Avoiding Interest and Fees vs Tax Deductions
While it’s important to understand that you may be able to deduct credit card interest and fees if they are business expenses, avoiding credit card interest may be the more prudent thing to do. If you are in a 30% tax bracket, that means deducting one dollar of interest will save you 30 cents. But if you pay your balance in full, you won’t be charged any interest and save the full dollar.
Some credit card fees and interest is deductible on your annual tax return. Generally speaking, you cannot deduct personal credit card interest or fees. You may be able to deduct them if they are legitimate business expenses. Keeping your business and personal expenses separate can help you determine which fees and interest you may be able to deduct.
Looking for a new credit card? Consider a rewards card that can make your money work for you. With the SoFi Credit Card, you earn cash-back rewards on all eligible purchases. You can then use those rewards for travel or to invest, save, or pay down eligible SoFi debt.
The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.1
Can you deduct credit card interest as business expense?
As credit card interest rates rise, the amount of interest that you’re charged each month on any unpaid balances also rises. So you may be wondering if you can deduct credit card interest from your taxable income. The good news is that as long as the interest is a legitimate business expense, you can generally deduct the interest.
Are credit card fees tax deductible?
It’s important to understand how different credit card-related items affect your taxes. Credit card rewards are generally not considered taxable, while some credit card fees may be tax-deductible. You may be able to deduct most credit card fees as long as they are considered legitimate business expenses. Personal credit card fees are not generally considered deductible.
Can you write off personal credit card annual fees?
No, in nearly all cases, you cannot take a tax deduction for personal credit card fees. Only credit card fees that are legitimate business expenses are tax-deductible. However, it’s important to understand that the IRS does not make any distinction between what might be marketed as a “personal” card or a “business” credit card.
Photo credit: iStock/Cameron Prins
The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, a statement credit, or pay down eligible SoFi debt.
1Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.