If you are a new business owner you may be wondering if you can write off credit card payments as a business expense. The answer yes and no, you can write off any business expenses paid with your business credit card, but you cannot deduct your credit card payments themselves as business expenses, since they are actually just loan repayments. Remember that you always need to keep your receipts to justify your business expenses.
What you can deduct in addition to your other business expenses are card charges, including interest payments and fees. Since interest payments on business purchases or balances are a business expense, you can deduct them as business expenses at tax time.
How much interest you pay depends on your APR, but typically you will pay between 10% and 25% annually for your total card balances throughout the year (if you pay your balance off in full by the due date you will not have to pay any interest). If you carry large balances over the course of the year, interest payments can add up to several thousand dollars that you can write off as a business expense. Note that this deduction applies only to business credit cards, interest paid on personal credit cards is not a deductible expense.
Card processing fees are another deductible expense. Every time you accept payments by card from a customer, the payments processing networks (like Visa or MasterCard) charge you transaction fees, interchange fees, internet gateway fees, PIN debit transaction fees and so on. The bank that issued your card may also slap on additional fees. Together these are usually called merchant processing fees and can add up to close to 10% of the total transaction in the worst case. Fortunately you can write these processing fees off, which means huge tax savings for a card-based business.
The annual fee of a business credit card is another expense that you can usually write off, and this is something to consider when choosing a business credit card. ATM fees are also considered a deductible business expense, so if your business involves frequent use of your business credit card to withdraw cash from ATM's, for example while traveling, this write-off can save your business some money. Cash withdrawals at ATMs outside of your bank's network can cost you up to $10 per withdrawal, and even the $2 or $3 that your bank probably charges can add up to a lot throughout the year.
One more benefit worth mentioning is that when you make a business purchase using a credit card in a given year, you can write off the deductible business expense in the year you made the purchase, even if you only repay your balance over several years. As far as the IRS is concerned, the purchase is completed at the time you use your card to make the payment. Other benefits that some cards offer which can make the tax season more pleasant include detailed annual expense statements and downloadable categorized statements that integrate into popular accounting software.