Credit cards and tax

Credit card statements can be an important record when facing tax issues.  Everyone should keep receipts for tax purposes.  And the receipts should be kept in an easily retrievable place.  However that is not always done, and while the IRS is not happy with this, they do accept that it happens.  In this way credit card statements can be used for tax purposes.

Credit card statements can be useful as tax records when preparing a return and looking through the credit card statement for deductible items.  For this reason it is always a good idea to keep credit card statements until the tax period.  It is still a good idea to keep receipts, and they should be referred to if there is some doubt about the exact nature of the purchase (or the make up of the purchase) but credit card statements, like bank statements, can be an excellent starting point for working out tax deductions.

It is more problematic to use credit card statements when faced with a tax audit.  Strictly speaking the IRS should be presented with receipts for all claimed deductions.  Over time they have become used to receipts not always being available and will accept, under protest, a reasonable and independent piece of evidence of the expenditure.  The problem with credit card statements is that they can sometimes be limited in what they can show, often showing simply the date, the amount and the shop that sold the items.  If there is a mixed purchase, that is of both goods that can and can not be deducted against tax, then these will not show properly on the credit card statement.

Another question is the deductibility of the credit card interest and fees.  In these cases it is often a good idea to have a separate business or employment cards that only relates to the expenses for the business or employment.  In this way there is no real question about the deductibility as the expenses were incurred in the course of the business.  Allocating the credit card expenditure on a mixed card can be awkward.

One question that has come up has been the taxability of rewards that come about from credit card spending.  This is a grey area.  While the rewards would not have come about if it were not for the business activities, they are not paid by a client or customer.  Whether this should be challenged really depends on how high the tax loss would be and how aggressive the tax payer wishes to be with the IRS.

In all these cases it is a good idea to get professional advice as to the deductibility of any items, the taxable nature of any rewards and the admissibility of credit card statements.