Use only one of the options below to report your business 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 card to make purchases of goods sold or to purchase material for production. Add the interest paid on your purchases there for the part of your goods or finished products sold during the year. If you didn’t sell all the goods during the year, a portion of the credit card interest paid would be included in the cost of goods sold and deducted. The remaining interest expenses would be tied to the inventory in stock.
Form 1120S – Line 13: Interest: If you use your credit card for business purchases other than goods sold, you could claim the interest here.
Form 1120S – Line 19: Other Deductions: If your credit card was not used to purchase goods sold, you could claim the interest here and attach a spreadsheet to mention it.
On that spreadsheet, add the name of the business, the EIN, and Line 19 Other Deductions. Add a table to list all the expenses you group on that line and their amount.
If you use the credit card for goods that go in inventory and other purchases fully deductibles during the year, you could get 2 business credit cards.
If you use the credit card to purchase both goods in inventory and other business purchases during the year you could report the credit card interest paid during the year that is associated with the goods sold during the year and the business purchases that are fully deductibles during the year on Form 1120S Line 13 (Interest) or Form 1120S – Line 19 ( Other Deductions).
Disclaimer:
“I am not an attorney to practice law. I am not allowed to draft legal documents, give advice on legal matters including immigration, or charge a fee for these activities.”
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