Business Expenses on Credit Card

June:

If I bought a computer on credit, and have payed off some off it, how do I claim a portion of my computer?

Michael from Atlanta


Michael,

Any charge made on or before December 31st to a bank credit card is an expense for that year, regardless of when the credit card balance is paid. For a store credit card it is an expense in the year it is paid. So if you bought your computer at BestBuy 2010 on a BestBuy credit card and paid for only half of it by the end of the year, you may deduct only half the cost on your 2010 tax return.

A similar treatment applies to expenses paid by check. For cash basis taxpayers (you’d know if you weren’t) a check written on or before December 31st, regardless of when it clears your account, is considered paid in the year it was written.

A hint for recordkeeping: Most bank and credit card monthly statements do not start on the first day of the month and end on the last. They straddle months and therefore they straddle years – for instance, December 14, 2010 through January 13, 2011. When you have a monthly statement that straddles a year, make a copy of it. Put the original and any paperwork (receipts, deposit slips, canceled checks, etc.) dated December 31 or before with the earlier year’s records (2010); put the copy and all paper transaction records taking place January 1 or later with the later year’s records (2011).

Visit here for June's 2011 manual recordkeeping how-to guide: The Confident Indie: Five Easy Steps

-- June