Is Credit Card Interest Deductible?

By Ben Luthi

The small business owner, especially one who works from home or a freelancer in the gig economy, often charges business expenses on credit cards. The question comes up a lot when they ask tax professionals if the interest on their cards is deductible.

The simplest, but comprehensive answer, is that it cannot unless it is correctly used for business expenses. The IRS rule for a business deduction for credit card interest says that:

• You must be legally liable for the debt.
• You and the lender assume you intend to pay the debt.
• The relationship with the lender is a creditor-debtor relationship.

That last item means you probably will have a problem if you borrow from your spouse and pay them back with interest. You must be liable for the full amount of the debt. If you share a card with your spouse, the calculations for interest deductions can be complicated.

The article is careful to keep reminding the reader that only the interest for business expenses is deductible. The biggest problem most small business owners experience isn’t due to trying to deduct interest on expenses that do not qualify as business-related. The problem is usually that they’ve mixed business and personal expenses on the same card. Even worse, they may have mixed the two expense types on a joint card with a spouse not involved in the business.

For a detailed IRS-approved explanation of credit card interest deductibility, read the article in full.