There were times when credit card rates hovered around 20%, but card holders could deduct almost the entire amount paid as credit card interest, from their taxes. There is some reason to cheer even now with some low interest cards, where card holders can deduct interest from their taxes. The underlying condition is that one has to utilize the money borrowed for entirely legitimate business purposes. In fact, card holders, in such scenarios can even deduct their annual fee from the cards.
You have to note however that deducting from tax doesn’t necessarily mean it is waived off completely. However, it still represents a saving and cuts the effective interest rate. In fact, according to some calculations, a 12% interest on a $5000 loan would save you $300 in taxes every year, which is a reasonable amount. An important thing to keep in mind is that the deductible interest wins over the non deductible interests in case there is a choice. So, charging your new office laptop on your credit card has higher preference over getting braces for your son. But, one has to be very careful with credit cards, because in the end it doesn’t feel like real money and hence we end up charging it easily.
