Can credit card annual fees be written off?

Can Credit Card Annual Fees Be Deducted for Business Use?

Businesses often use credit cards to manage their financial operations. The convenience and rewards programs offered by credit cards make them an attractive option for many companies. However, one of the potential drawbacks of using a credit card for business is the annual fee.

Annual fees can range from a few dollars to several hundred dollars. While some businesses may be willing to pay these fees to reap the benefits of using a credit card, others may be looking for ways to save money. One way to do this is to write off the annual fee as a business expense.

Deductibility of Credit Card Annual Fees

The Internal Revenue Service (IRS) allows businesses to deduct certain expenses, including annual fees paid on business credit cards. However, to be eligible for the deduction, the credit card must be used primarily for business purposes.

The IRS defines “primarily for business purposes” as using the card for business-related expenses that exceed 50% of the total expenses charged to the card. If a business uses the card for both business and personal expenses, only the portion of the annual fee that is attributable to business use is deductible.

Calculating the Deductible Portion

To calculate the deductible portion of the annual fee, businesses need to determine the percentage of business use for the credit card. This can be done by tracking the business expenses charged to the card over a period of time. Once the percentage of business use has been determined, the business can deduct that percentage of the annual fee on their tax return.

For example, if a business uses a credit card for 75% business expenses and 25% personal expenses, 75% of the annual fee would be deductible as a business expense.

Documentation

It is important for businesses to keep records to support their deduction for credit card annual fees. This may include credit card statements, receipts, and a log of business expenses charged to the card. By keeping good records, businesses can ensure that they are able to justify their deduction if they are audited by the IRS.

Conclusion

Credit card annual fees can be a deductible business expense for businesses that use the card primarily for business purposes. By carefully tracking their business expenses and maintaining good records, businesses can ensure that they are able to maximize their tax deductions and save money on their credit card costs.