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Tax season is here, and taxpayers may be looking for a way to reduce the amount of taxes they owe. Tax deductions are an easy option - they lower your taxable income (and reduce your tax burden).
For those who have credit card debt, interest can be a significant expense throughout the year. It would be nice to be able to deduct all that money from your taxes, but unfortunately, most consumers won't be able to deduct their credit card interest from their taxes, with a few exceptions.
Keep in mind that we're focusing on the rewards and perks that make these credit cards great options, not things like interest rates and late fees, which will far outweigh the value of any points or miles. It's important to practice financial discipline when using credit cards by paying your balances in full each month, making payments on time, and only spending what you can afford to pay back.
You can't deduct personal credit card interest from your taxes
A little bit of history: The Tax Reform Act of 1986 eliminated personal credit card interest as a deductible expense. In other words, you can no longer deduct the interest incurred on everyday purchases from your taxes. This includes interest paid on personal loans, furniture, medical expenses, and more.
"Prior to that act you could deduct any and all types of consumer interest," said Peter Palion, certified financial planner and president of Master Plan Advisory. "But now you can't, with some exceptions. It can often be very confusing for consumers."
What credit card interest is deductible?
While you can't deduct credit card interest, you may be able to write off interest you paid on business expenses charged to your card. This also includes business expenses for contractors and self-employed individuals. A list of qualified business expenses are listed on the IRS' website here.
You can still deduct this kind of interest even if the credit card you used isn't specifically a business credit card, said Palion. And conversely, personal expenses on a business credit card is still considered non-deductible.
This all probably sounds extremely confusing. The easiest way to remember is: Interest from personal expenses are not deductible. Interest from business expenses is deductible.
You can make things easier come tax time by using a separate credit card for all business expenses. This simplifies the process of calculating the interest you've paid. Keep track of your receipts and the amount of interest paid throughout the year.
Mixing business with pleasure, credit card-wise, can make deductions difficult to figure out. If you use the same credit card for business and personal expenses, you may wind up combing through your statement to separate out the business statements and calculating the amount of interest paid.
Some other types of interest are tax deductible
While most types of credit card interest aren't tax deductible, there are some other forms of interest that are.
There are dozens of deductions to take this tax season. Best practice is to consult a tax professional before filing - they can guide you through the filing process and help explain other deductions you may qualify for.
Some of the top business credit cards to consider
If you don't have a business credit card but you're self-employed or run a business, it's worth considering one. Not only will these help you stay organized by keeping your personal and work expenses separate, but business credit cards also offer unique benefits and bonus categories tailored to small business owners.
Here are some of the top business credit cards to consider.
See Business Insider's list of the best small business credit cards »
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