Soo has over 10 years of experience at publicly traded companies and public accounting firms offering tax, accounting, payroll and advisory services to clients in diverse industries, including manufacturing, wholesale and retail, construction, real estate development, banking, finance, and professional and legal consulting. At Pricewaterhouse Cooper, she worked with many foreign-owned companies and advised clients on a broad range of issues, including federal and state tax minimization, determining the optimal structure for new foreign investments, and restructuring and reorganization for existing operations.
August 2, 2024 July 19, 2022 Reviewed by a tax professional
This content has been reviewed by an Enrolled Agent (EA) with the IRS — the highest credential awarded by the agency. Enrolled Agents are empowered to represent all taxpayers before the IRS, on all types of tax-related matters. Accountants who earn this certification have passed a comprehensive three-part exam on individual and business tax returns. To maintain EA status, they must stay up to date in the field by completing 72 hours of continuing education every three years.
Soo has over 10 years of experience at publicly traded companies and public accounting firms offering tax, accounting, payroll and advisory services to clients in diverse industries, including manufacturing, wholesale and retail, construction, real estate development, banking, finance, and professional and legal consulting. At Pricewaterhouse Cooper, she worked with many foreign-owned companies and advised clients on a broad range of issues, including federal and state tax minimization, determining the optimal structure for new foreign investments, and restructuring and reorganization for existing operations.
August 2, 2024 July 19, 2022 Reviewed by a tax professional
This content has been reviewed by an Enrolled Agent (EA) with the IRS — the highest credential awarded by the agency. Enrolled Agents are empowered to represent all taxpayers before the IRS, on all types of tax-related matters. Accountants who earn this certification have passed a comprehensive three-part exam on individual and business tax returns. To maintain EA status, they must stay up to date in the field by completing 72 hours of continuing education every three years.
It’s no secret that most taxpayers are drowning in debt. Wouldn’t it be great if some of that debt could be used to lower your tax bill?
You can’t write off all your credit card debt. But if you’re an independent contractor, business owner, or side hustler, your credit card bills can actually be useful for once.
How? You can write off the interest you incur buying things for work.
Let’s start with the bad news. Any credit card interest earned from a personal purchase can’t be used as a tax write-off.
If you want the good news, skip straight to the next part, about how self-employed people can claim credit card interest write-offs! Otherwise, stick around for a short history lesson.
Before the Tax Reform Act of 1986, signed during Reagan’s second term, you could write off all your credit card interest.
What it was like to do your taxes in 1986
If you’re a real history buff, you can check out these instructions for filing a tax return back in 1986.
Notice the section on page 20 about writing off your credit card interest.
There’s also the intro note from the IRS Commissioner, about how things would be changing soon!
Why the deduction for personal credit card interest went away
Congress got rid of the write-off for personal credit card interest in an attempt to get more Americans to save (instead of spending their money on big personal purchases).
Now, you can only claim credit card interest on your taxes if you incurred it buying something for your business.
That brings us to the good news.
Anytime you pay for something that’s a business write-off using a credit card, you can write off your credit card interest too.
Yes, you can write off credit card interest for work-related purchases, even if you’re making them on a mostly-personal card.
If you don’t pay off your card regularly, though, it’s easier to use a separate business credit card.
Let’s talk about why. (Spoiler alert: It’s compound interest!)
That being said, it doesn’t require a separate card if you’re trying to take a business interest deduction. (You’ll notice there’s absolutely nothing excluding this in IRS Publication 535, which deals with business expenses.)
Bottom line: Interest on your personal credit card can count as eligible business interest if it comes from your business purchases.
How a business purchase on a mixed-use card would work
For example, let’s say you spent $20,000 on your credit card last year, and paid $1,200 in interest. $5,000 of your purchases were for work-related items — new laptop, office furniture, and software expenses.
That means 25% of your purchases were deductible expenses. So you can treat 25% of your credit card interest as a business expense too. That gets you a $300 interest deduction.
The example above is straightforward. But if you routinely have rolling balances and compound interest, things quickly slip into murky water.
With a credit card balance that doesn’t get paid off periodically, it’s exponentially harder to separate out the business portion of your interest.
If you tend to roll over your balance indefinitely, we recommend using a separate card for your business. It'll simplify your recordkeeping by a lot.
Mixing business and personal purchases on the same card isn’t always a bad idea. It doesn’t affect your ability to write off the work-related purchases you’re making.
Here are a couple of scenarios showing what a mixed-use card means for your taxes.
Putting business expenses on a mixed-use card you pay off
Say you’re using a credit card for the convenience (or the rewards!) and you’re able to pay off the balance every month.
You’re not paying any interest, so all you have to worry about is the cost of the items you’re buying.
If some of your credit card bill went to paying stuff you bought for work, go ahead and write off the cost of those purchases!
Claiming these write-offs is easy if you use Keeper. Our app can automatically scan the purchases on any card to create a separate list of business expenses.
Putting business expenses on a mixed-use card when you don’t pay it off
Sometimes, you can’t avoid mixing business and personal purchases on the same card – even if you don't make prompt payments on it.
Don’t worry: you can still write off the cost of any work-related purchases you put on that card.
Let’s say you’re a freelance photographer. You’re at the store to buy a new microwave for your kitchen. After putting it in your cart, you walk by the electronics display and realize they’re having an amazing sale on printers.
You’ve been meaning to get one so you can print photos for your clients. You don’t have a business card on you, and the deal's so good, the printers are about to run out. So you grab one and put it on your personal card.
Good news: There’s nothing stopping you from writing off the cost of the printer.
Writing off the printer itself will save you a lot more than writing off the interest on it. So don’t overthink it. If it’s convenient for you, go ahead and buy it with your personal card.
Now that you know what credit card interest deductions you can take, let’s talk about the how.
Taking a write-off for credit card interest is simple. Just claim it on your Schedule C, with your other business-related purchases.
You’ll put it under “Box 16b: Interest.”
Besides credit card interest on business purchases, the IRS only lets you write off a few other types of interest.
Just remember: Any type of interest from personal expenses gets taken off your 1040 tax return or your Schedule A, not your Schedule C. You'll only use Schedule C for interest you incurred for business purposes.
Here are the other types of interest you can write off — and whether to claim each deduction.
Where to write it off: Schedule C
Yup, credit cards aren’t the only way for businesses to:
If you get a business loan you can write off the interest on it.
Where to write it off: Schedule C
If you drive for work, you can write off the interest on your car loan. You can also deduct the cost of the car itself, through vehicle depreciation. (To learn more, check out our guide on car depreciation for taxes.)
Note: This write-off is only for self-employed people who drive on the job. If you only use your car for personal purposes, then your auto loan interest isn’t a write-off.
Where to write it off: Schedule A
For a home office: Schedule C and Form 8829
For a rental property: Schedule E
Housing isn’t cheap, but the federal government wants to encourage people to become homeowners.
One easy way to do this? Allowing them to write off the cost of their mortgage interest from their taxes.
You can deduct the interest on the first $750,000 of your home loan ($375,000 if you’re married and filing separately.)
Writing off your mortgage interest if you have a home office
If you use a home office and own your home, your mortgage interest is both a personal and a business expense.
You’ll report the personal-use part of it on your Schedule A. The business-use part of it, though, goes on two forms:
For more on how to figure out the business use of your home, check out our guide to the home office deduction.
Writing off loans for investment properties
A mortgage on your primary residence isn’t the only kind of home loan with tax-deductible interest. If you buy real estate and rent it out, you can write off a portion of that interest from your taxes.
You’ll put it on your Schedule E, which reports income from real estate and other sources (like royalties and partnerships.)
Where to write it off: Form 1040
The one bright side of student loans: the interest you pay on them is tax-deductible — at least up to a point.
Those are the only kinds of interest you can use to reduce your taxes. For everything else, you’ll have to foot the bill yourself. That includes:
So go on — invest in your business. This is one area, at least, where the IRS will have your back.
Soo has over 10 years of experience at publicly traded companies and public accounting firms offering tax, accounting, payroll and advisory services to clients in diverse industries, including manufacturing, wholesale and retail, construction, real estate development, banking, finance, and professional and legal consulting. At Pricewaterhouse Cooper, she worked with many foreign-owned companies and advised clients on a broad range of issues, including federal and state tax minimization, determining the optimal structure for new foreign investments, and restructuring and reorganization for existing operations.
Over 1M freelancers trust Keeper with their taxes
Keeper is the top-rated all-in-one business expense tracker, tax filing service, and personal accountant.
Over 1M freelancers trust Keeper with their taxes
Keeper is the top-rated all-in-one business expense tracker, tax filing service, and personal accountant.
