Don't Miss Credit Card Charges

I have long maintained, based on real life knowledge, that the conventional wisdom that everyone cheats on their taxes is 180 degrees off from how things really are. The truth is that most people overpay their taxes, mostly because of lousy bookkeeping. That is why we have been very forceful in requiring our clients to set their accounts up on QuickBooks. I will be explaining many of the benefits of doing this, especially for personal non-business accounts, in this blog and on my web site over the next several weeks.

One of the biggest areas where people shortchange themselves in terms of claiming perfectly legitimate deductions, is when credit cards are involved. Most people, when getting their info together for their tax preparer, only look through their checkbooks and completely overlook their credit card activity. There is also a misconception that you can only deduct those charges that have been paid off by the end of the year. Not true. IRS treats credit card charges exactly the same as cash payments. This is not even a grey area and has been official IRS policy for as long as I have been doing taxes (27+ years). You can literally go to Best Buy on December 31 and buy a computer with a credit card and deduct it on that year's taxes, even though the bill won't arrive until next year. It also doesn't matter when, or if, you ever pay off the credit card. An additional benefit is that, if a charge was for legitimate business reasons, all subsequent finance charges on that balance are deductible on the same tax return schedule where the original charge was claimed. This is another often overlooked deduction, because most people are under the assumption that credit card interest is a non-deductible personal expense.

The only way to accurately account for all of your credit card activity is to post all of the transactions in QuickBooks, along with all of your bank accounts. A separate account should be set up for each card and it should be reconciled with the credit card statement each month to ensure completeness. Each charge should be entered into the card's register and coded to the appropriate expense as of the date of the charge.

KMK
- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/25/2003 08:18:00 PM Send this post: