Use only one of the options below to report your interest expenses.
How to Report Credit Card Interest for a Trade or Business Activity
Form 1125 A Cost of Goods Sold – Line 2: Purchases: If you only used the credit cards to make purchased of goods sold or to purchase material for production , you could add the credit card interest paid during the year on your purchases there. Your interest would be tied to your inventory. You only deduct the portion of the interest associated with the goods sold during that year.
Form 1065 Line 15 Interest: If you use your credit card for business purchase other than goods sold, you could claim the interest here. You could choose to report the credit card interest paid here even if you use it to purchase goods sold or raw materials instead of report it on line 2 of Form 1125A. But it is a good practice to report the amount that is related to the goods sold not the goods in inventory.
Form 1065 Line 20 Other Deductions: If your credit card was not used to purchase goods sold, you could claim the interest here as well and attach a spreadsheet to mention it. Only deduct the interest paid on goods sold.
How to report Credit Card Interest for Passive Business Activities
Deductible Expenses
Report the interest expense on Form 1065 Schedule K: Line 13d – Other Deductions: Report the credit cards interest that is related to expenses that are deductibles.
Non-Deductible Expenses
Report on Form 1065 Schedule K – Line 18c: Non-Deductible Expenses: If you use the credit card to make business purchases that are non-deductible for LLC engaged in portfolio income activities. For instance, we have an investment property that we need to remodel and rent it out. While the property is not rented, we maintain it regularly and incur expenses. We purchased a lawnmower to maintain the lawn. If we have purchased the lawn mower with our business credit card and didn’t pay it in full, we would have incurred credit card interest. That interest expense would be reported on Form 1065 Schedule K-Line 18C as non-deductible expenses.
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