Are Business Credit Card Fees Tax Deductible?

Business credit cards can offer your company flexible financing and tools to help you run things more efficiently. But some of the best business credit cards also come with annual fees that can make them less appealing.

You shouldn't dismiss a business card just because it has a fee, though — especially if the card's benefits outweigh that cost. Plus, there's one thing that can soften the impact of that extra expense: Business credit card fees can be tax deductible.

Can you deduct business credit card fees on your taxes?

Entrepreneurs can deduct expenses that are both “ordinary" and "necessary” to their business, according to Internal Revenue Service regulations. Fees on business credit cards — annual fees, late fees, balance transfer fees, etc. — can fit that description.

This also means you can potentially deduct business credit card interest, as well as any credit card processing fees you paid for accepting card payments.

If you want to deduct business credit card fees on your taxes, make sure you've used the card for business spending only. That's because your deduction depends on the percentage of business expenses among the charges on the card. For example, if only 75% of your card spending was on business expenses, you can deduct only 75% of the annual fee.

Accounting headaches like this are just one reason to always keep your business expenses separate from your personal finances. Bookkeeping is a lot easier when you're not trying to figure out whether each charge is business or personal — and you won't end up accidentally deducting personal expenses from your business income, which is illegal.

Consult a tax professional if you're not sure whether a business expense is tax deductible.

» MORE: 21 small-business tax deductions to know

Is it worth getting a business card with an annual fee?

Of course, you shouldn’t jump on a credit card offer just because the annual fee is tax deductible. Here are a few factors to consider when you’re weighing a business credit card with an annual fee:

• Can you afford the fee upfront? Writing off a business credit card's annual fee can eventually help defray that expense. But the initial cost still has to come out of your pocket before you can deduct it and could be hundreds of dollars if you opt for a premium business travel credit card.

• How much do ongoing rewards and perks offset the fee? Cards with annual fees tend to offer larger sign-up bonuses, richer benefits and more valuable perks. But if you won't spend enough to earn that big bonus or take advantage of things like unlimited airport lounge access, you likely won't get your money's worth.

• Does the rewards structure match your business expenses? Business travel cards typically charge an annual fee, and many offer bonus categories geared toward frequent fliers or road warriors. A travel card with a $95 fee might offer 3X points on hotels or 4X points at restaurants, for example. If your business spends more on office supplies than dining out, a cash-back business card is likely a better fit. These cards typically have no annual fee, and some offer higher rewards on things like office supplies, wireless bills and even some travel-related expenses.

And if you decide you're against paying for a card, there are a number of no annual fee business credit cards that offer solid rewards.