An annual fee shouldn't be a dealbreaker when you choose a business credit card. The IRS can help cover the cost. Plus, the rewards and perks that come with fee-based cards often make them worth it anyway.
Annual Fee
$0 Can you deduct business credit card fees on your taxes?
Yes, you can deduct business credit card fees on your taxes if you use the card for business purposes.
The IRS allows deductions for expenses that are "ordinary" and "necessary" to your business. Credit card fees fit that description, including:
- Annual fees.
- Late fees.
- Balance transfer fees.
- Interest charges.
How much can you deduct? It depends on how you used the card.
If 100% of your card spending was on business expenses, then you can deduct 100% of the annual fee. But if business expenses accounted for 75% of your card spending, then you can only deduct 75% of the annual fee.
Keep business and personal expenses on separate cards to protect your deduction and avoid an IRS headache. Deducting personal expenses from business income is illegal, even if it's accidental. When in doubt, a tax professional can help you determine what qualifies.
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Is it worth getting a business card with an annual fee?
Tax deductibility makes an annual fee easier to stomach. But it's not reason enough to eat the fee. Ask yourself these questions before getting a business card with an annual fee:
- Can you afford the fee upfront? Writing off a business card's annual fee can help defray the cost. But you have to pay it before you can deduct it, and premium business travel cards have annual fees of $395 or more. Make sure the cost is manageable before you apply.
- Do the perks justify the cost? Cards with annual fees tend to offer larger sign-up bonuses and richer benefits. But if you won't spend enough to earn that bonus or use perks like airport lounge access, you likely won't break even.
- Does the rewards structure match how your business spends? A business travel card with a $95 fee might offer 3X points on hotels or 4X points at restaurants. That's great for frequent travelers, but not so great if your business sticks close to home. A cash-back business card is likely a better fit.
Not sold on paying a fee? There are plenty of no-annual-fee business credit cards that offer solid rewards.
