Credit · June 26, 2020

The Role of Business Credit Cards in Your Financial Strategy

Business credit cards can be an effective way to manage and track your spending.

When you know how to use credit cards to your advantage and avoid the potential downsides, they can be a critical part of a smart tax and finance strategy.

Credit cards can be part of a cohesive financial strategy for your business.


Business credit cards can be an effective way to manage and track your spending. They can also help you make necessary purchases to improve and grow your business while pacing out payments, so you can maintain the level of cash flow that makes sense for you. There's another potential advantage, too—your business credit card interest may be tax-deductible.

When you know how to use credit cards to your advantage and avoid the potential downsides, they can be a critical part of a smart tax and finance strategy.

Credit card interest as a business expense

First, it's important to understand what kinds of purchases qualify as tax-deductible expenses. The IRS defines business expenses as being ordinary and necessary. An ordinary expense is one that's common and accepted in your trade or industry. This could include a new water filter for employees in your office, for example, even though it doesn't directly generate revenue. A necessary expense is one that's helpful and appropriate for the business—for example, a manufacturer paying for raw materials.

The interest you pay on debts, including credit cards, may qualify as a tax-deductible business expense, as long as the purchase you made with the card was for your business. This could include travel expenses, office supplies or monthly rent for your storage facility.

If you use a credit card for both business and personal purposes, you can only deduct the portion of the interest that's charged on your business purchases. Business credit cards often provide itemized, year-end statements that make it easy to gather information to prepare for your tax return.

How to manage business credit cards

Credit cards make purchasing goods and services fast and easy. Some offer perks, such as price guarantees or extended warranties. Others deliver rewards, such as airline miles or cash back. Many cards offer rewards on regular business expenses like travel, utilities, phone bills and restaurants. Paying for everyday business expenses can maximize your rewards and or cash back.

But business credit card interest can have downsides if it's left to grow or isn't used responsibly. That's why it's essential to follow some best practices with your business credit cards.

Avoid using credit cards for big-ticket items like real estate or equipment. These types of major investments are usually best handled through business loans rather than credit cards because loans typically have lower interest rates.

Similarly, try only to purchase items that are truly necessary for your business and have a clear connection to helping you make money. It can be tempting to buy today and worry about paying it back tomorrow, but that could lead to taking on too much debt. Make sure you can afford to pay for the purchase in a timely fashion before you make it.

Finally, always pay your bill on time. If you don't, you'll likely get hit with a late fee on top of your interest charge. Late payments may negatively impact your business credit score, which could affect your chances of getting a loan in the future. And if you pay off your balance each month, you can avoid paying interest altogether.

Hold onto your receipts

While your credit card statement will provide proof of interest payments, make sure you keep your receipts documenting the purchase itself. You'll want to verify charges when you pay your bill. It also helps to have the necessary documentation for taking a tax deduction. The credit card statement alone isn't sufficient proof for tax purposes.

Credit cards can be part of a cohesive financial strategy for your business. When handled responsibly, they're a powerful tool that delivers convenience as well as rewards and easier expense tracking. If you choose the right card for your company, understand the rules and stick to the best practices, you can enjoy the benefits that business credit cards provide.

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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.