Business Credit Cards and Your Schedule C |
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A Schedule C is a place to list deductions for expenses
incurred to your business, and this can include interest paid on business
credit cards. The Schedule C tax form has five key sections,
each meant to list a specific type of deduction. Classifying your
deductions correctly can save you money on taxes and help you make
better decisions about your expenses in the upcoming year.
Five Sections of a Schedule C
The five key sections of a Schedule C help you categorize your
various business expenses to maximize deductions. They include:
- Income--This is where you list the gross income of your
business over the current tax year.
- Expenses--This list encompasses expenses incurred, such as
for the maintenance of your home or building or car or truck.
- Cost of Goods Sold--This includes any expenses directly
related to the production of your profit including raw material and
labor.
- Vehicle Information--Even though your vehicle expense is
deducted in Part II, you will list information on your vehicle so the
IRS can verify the expenses in Part IV.
- Other Expenses--This list includes supplemental expenses
such as membership dues to professional organizations, subscriptions to
business periodicals, and credit card finance fees.
Listing Credit Card Expenses
You will list all credit card expenses due to interest in Part
V. If you are unsure of your exact interest charged, you can ask your
credit card company for a statement of this number each year. Request
the statement for the January to January tax year, and do so as early
as possible. You will need time to verify the interest you are
reporting with your personal records to assure you are reporting the
information correctly.
Qualified Interest and Finance Charges
The key factor in listing an expense is determining whether it
is directly related to the business. The easiest way to manage this
option is to have a dedicated business credit card only used to
purchase items related to your company. When you make a purchase, it
should qualify for a deduction under Part II or Part III of your
Schedule C. If you cannot list the expense in one of these sections,
you should not place the expense on your credit card. This can become
tricky with expenses you are planning on capitalizing instead of
deducting. Ask your accountant how to make these purchases and deduct
interest charges if possible.
Reporting Procedures
You will need to supply the raw figures to the IRS only when
it comes time to report and pay your taxes. However, just because you
do not need to supply receipts does not relieve you from the
responsibility of keeping them. You should be keeping a ledger of
business expenses accompanied by receipts. If you would like, you can
also take a photograph of the item purchased for your records. In the
case of an audit, having these records on hand and easily accessible
will save you from stress, hassle and, most importantly, the potential
to owe back taxes and penalties if you cannot substantiate the
deductions.
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