Can you deduct credit card interest for business?

For many business owners, credit cards are a practical tool for improving cash flow. You might use them to bridge gaps between paying suppliers and collecting from customers, or to make necessary purchases when cash is tight. The downside is that carrying balances means paying interest, and those costs can add up quickly.

This is where the tax deduction becomes valuable. When you can write off credit card interest as a business expense, you're lowering your taxable income. If your business is in the 24% tax bracket and you paid $1,000 in credit card interest last year, that deduction saves you $240 in federal taxes. The interest still costs you money, but the government is essentially picking up part of the tab.

Under U.S. tax law, this works because interest paid on business related debt is generally deductible as a business expense. If you use a credit card strictly for legitimate business purchases, the interest charges on that card are typically tax deductible against your business income. Think of it the same way you would interest on a business loan. As long as the debt was incurred in the course of business, the associated interest can be written off on your taxes.

This principle extends to cash advances too. If you take a cash advance and use those funds entirely for business needs, that interest may also be deductible. One important timing rule to keep in mind is that you can only deduct interest in the tax year you actually paid it, not when it was merely accrued. Interest showing on this year's statements gets claimed on this year's return, while interest paid next year goes on next year's return.

The deductibility also applies to many credit card related fees tied to business spending. Annual fees on your business credit card count as a business expense and can be written off. The same goes for foreign transaction fees or other finance charges incurred for business purposes. To make the most of these deductions, keep thorough records. Saving business receipts and monthly statements will help you clearly document which charges stem from business activities when tax season arrives.

The rules around deducting credit card interest weren't always this way. Before 1986, Americans could deduct personal credit card interest on their tax returns just like mortgage interest. The Tax Reform Act of 1986 changed that, eliminating the deduction for personal credit card interest entirely. That rule remains in place today.

Business credit card interest, however, sits in a different category. When a credit card is used exclusively for business purchases, the interest on those charges is generally deductible as a business expense. The logic is straightforward. Personal interest is considered a lifestyle choice, while business interest is a cost of generating income.

Under current Internal Revenue Code §163(a), interest on a business's credit card debt is treated as a cost of doing business and can be deducted. Interest on personal credit card debt is always considered a personal expense and offers no tax benefit whatsoever.

So what does this mean for you as a business owner? When it comes to a business credit card vs personal credit card, the one you put expenses on matters. The same $500 in interest charges could be fully deductible if it came from business purchases on a high limit business credit card, or completely non-deductible if it came from personal spending. This difference should inform how you think about which cards you reach for when making purchases for your company.

For credit card interest to be deductible, the underlying purchases must qualify as legitimate business expenses. The IRS uses a simple test here. The expense must be both ordinary and necessary for your trade or business. Ordinary means it's common and accepted in your industry. Necessary means it's helpful and appropriate for running your business.

In practical terms, this covers most of what you'd expect. Office supplies, software subscriptions, business travel, client meals within IRS limits, equipment, inventory, marketing costs, and professional services all qualify as tax deductible business expenses. If you put these types of purchases on your business credit card and carry a balance, the resulting interest is deductible.

What doesn't qualify? Anything personal. A dinner with your spouse, clothes you wear outside of work, or a vacation that happens to include one business meeting. These purchases don't become business expenses just because you used your business card to pay for them. If you charge personal items to your business credit card, the interest generated by those charges cannot be written off.

The IRS expects you to be able to back up your expense claims with documentation. This means keeping receipts that show what was purchased, when, and for what business purpose. Your credit card statements alone won't tell the whole story. If you're ever audited, you'll need to demonstrate that each expense generating deductible interest was genuinely tied to your business operations.

In an ideal world, every business owner would have completely separate cards for business and personal spending. In reality, especially for freelancers and sole proprietors, expenses sometimes end up mingled on the same card. This creates a complication at tax time.

The rule is firm. Interest on personal purchases is never deductible, even if those purchases were made on a business credit card. If you use a single card for both business and personal expenses, you can only deduct the portion of interest that relates to the business charges. Calculating this requires some math. Look at your total charges for a given period and determine what percentage were business related. If 60% of your charges in a month were for business purposes, then 60% of that month's interest is potentially deductible. You'll need to do this calculation for each billing cycle where you had mixed spending.

This approach demands meticulous record keeping. You'll need receipts and statements that clearly identify which charges were business and which were personal. Without solid documentation, you're taking a risk. The IRS may disallow deductions you can't substantiate, and sloppy tracking of mixed expenses can trigger closer scrutiny of your entire return. The smarter path is to avoid this situation altogether. Getting a business credit card keeps your expenses cleanly separated from day one. Your interest deduction becomes straightforward, your expense reporting gets simpler, and you reduce the chance of making errors that could cause problems down the road.

Once you've kept business and personal expenses separate and maintained good records throughout the year, claiming the deduction itself is relatively straightforward.

Start by gathering your credit card statements for the tax year and identifying the interest charges on each one. If you use accounting software, you may already have this categorized. If not, go through each statement and total up the interest paid across the year. Keep your receipts and records nearby as well, since these connect those interest charges to the business expenses that generated them.

With your documentation in order, determine your deductible amount. If your card was used 100% for business, then all the interest you paid is deductible. If you had mixed use, apply the business percentage calculation described earlier to arrive at your deductible figure. Remember that only the portion tied to business purchases qualifies.

Where you report the deduction depends on how your business is structured. Sole proprietors and single member LLCs report credit card interest on Schedule C, specifically on Line 16b for interest expense. Partnerships report it on Form 1065, S corporations use Form 1120-S, and C corporations use Form 1120. In each case, look for the section designated for business interest expenses.

If your situation involves significant interest amounts or any complexity around mixed use, working with a CPA or tax professional is worth considering. They can make sure you're claiming everything you're entitled to while keeping your return on solid ground.

While credit card interest is generally deductible for business purposes, there are some limits and exceptions worth knowing about before you file.

Business interest expense limitation

The Tax Cuts and Jobs Act of 2017 introduced a cap on how much interest certain businesses can deduct. For most small businesses, this won't be an issue. The limitation only kicks in for companies with average annual gross receipts exceeding $30 million over the prior three years. If your business does fall above that threshold, you may only be able to deduct interest up to 30% of your adjusted taxable income. Any interest beyond that limit can typically be carried forward to future tax years. But if you're running a smaller operation, this rule likely won't affect you at all.

Non-deductible fees and charges

Not everything on your credit card statement qualifies for a deduction. Late payment fees and penalties for missed payments are not deductible, even on a business card. The IRS views these as avoidable costs rather than ordinary business expenses.

Annual fees, on the other hand, are deductible if the card is used for business. Foreign transaction fees incurred on business purchases also qualify. The key distinction is between fees that are part of normal card usage and penalties that result from missed obligations.

Using personal cards for business expenses

If you use a personal credit card for business purchases, the interest on those specific charges may still be deductible. The IRS cares about the nature of the expense, not the name on the card. However, this approach invites extra scrutiny and makes documentation more burdensome. You'll need to clearly prove which charges were business related and calculate the corresponding interest. Whenever possible, using a dedicated business card is the cleaner path.

Knowing that credit card interest can be deductible is one thing. Setting yourself up to actually capture that deduction without headaches is another. These practical steps will help keep your finances clean and your tax filings simple.

Use a dedicated business card

This is the single most helpful thing you can do. A credit card used exclusively for business expenses eliminates the need to separate charges or calculate percentages of interest. Every dollar of interest on that card is clearly tied to business spending, which makes your deduction straightforward and defensible if the IRS ever asks questions.

Pay off balances when you can

While deductible interest reduces your tax burden, it's still money out of your pocket. A tax deduction only offsets a portion of the cost. If you're in the 24% bracket, you're still paying 76 cents on every dollar of interest. Whenever cash flow allows, paying your balance in full each month is the smarter financial move. Use the deduction when you need to carry a balance, but don't carry a balance just because the interest is deductible.

Keep detailed records

Throughout the year, save your business receipts and monthly statements. Use accounting software or a simple spreadsheet to categorize expenses and track interest charges. If you provide business credit cards for employees, make sure their receipts and expense reports are included in your documentation. When tax time comes, you'll have everything you need at your fingertips. Good records also protect you in the event of an audit, since you'll be able to show exactly which business expenses generated the interest you're deducting.

Stay current on tax rules

The rules around interest deductions have shifted before and could shift again. Make it a habit to review what's deductible each year or work with a tax professional who can keep you informed. Staying current helps you maximize business credit card benefits, capture every deduction you're entitled to, and avoid claims that could cause problems.

Credit card interest can indeed be tax deductible for businesses in the United States, but only when it stems from legitimate business expenses. Personal credit card interest remains non-deductible, a rule that's been in place since 1986 and shows no signs of changing.

For business owners, this deduction represents a real opportunity to reduce the cost of using credit. Interest on purchases like equipment, inventory, supplies, and business travel can all be written off, lowering your taxable income and improving your bottom line. The key is keeping things clean. Use a dedicated business card whenever possible, maintain thorough records of your expenses and interest charges, and make sure you can document the business purpose behind every purchase. If you do mix personal and business spending on the same card, be prepared to do the math and keep the paperwork to back it up.

This is where having the right financial tools makes a difference. Brex offers a corporate card, business banking accounts, and expense management software designed to work together seamlessly. Your business expenses are automatically categorized, your records stay organized, and separating business from personal spending becomes effortless. When tax season arrives, you'll have clear documentation of every charge and the interest it generated, without digging through shoeboxes of receipts or piecing together spreadsheets.

If you're serious about maximizing your deductions while simplifying your financial operations, Brex gives you everything you need in one place. The corporate card earns rewards on business spending, the banking platform keeps your cash working harder, and the expense management tools ensure nothing falls through the cracks. Sign up for a Brex card today and make managing your business finances as simple as it should be.