The newspapers and popular magazines like to tell readers that using a credit card near the end of the year can be a way to take a tax deduction this year and pay the bill next year. This works for any deductible expense -- whether it be a personal prescription or a business expense. The strategy is that the charge can be deducted in the year it is charged, not the year it is paid.
But there is a dangerous hole in the popular advice can leave you stuck with a big tax mess. Credit card deductions are not all the same under the tax rules.
The general rule of tax deductions is that you only get a tax deduction in the year you actually pay for a deductible expense, and the tip about using credit cards is an exception to the general rule.
What most of the people giving you this end of the year tip don't tell you is that there is a critical exception to the exception. If you charge a deductible expense on a credit card issued by the company supplying the deductible goods or services, you can't take a deduction until the credit card bill is paid. If you use the store credit card for your office supplies, you can't deduct it until you pay. But if you use your Visa or MasterCard you can take the deduction immediately. Same at the drug store. If you use your credit card you can take the deduction this year, but if the store bills you directly you can't take the deduction until you pay the bill. Keep this in mind near the end of the year, when you may want to choose which card you use depending upon which year you want to take the tax deduction in.
About the Author Adam Starchild is a widely published author of books and articles on taxes, personal finance and business.Copyright © 1993 by Adam Starchild
The Tax Library has reprinted this copyrighted article with the permission of the author.
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