How Do I Claim Sales Tax and Credit Card Interest?

Family child care providers are entitled to claim sales tax and credit card interest on items used by their business.

If your purchase was used 100% for your business, then calculating the sales tax is simple: $58 toy x 6.5% sales tax = $61.77 deduction.

If your monthly credit card statement only included items used 100% for your business, the calculation remains simple: $367 of multiple items x 15% interest = $422.05 deduction.

But, what if the receipt or your credit card statement included items that were not used 100% for your business?

The Calculation

Let's say you bought 5 items: $29 cleaning supplies, $10 light bulbs, and $41 fertilizer that were business and personal expenses; $17 toy used 100% for your business; and $15 clock for your bedroom that is only used personally. The sales tax on the total expense of $112 is 6.5%, or $7.28. Your Time-Space Percentage is 40%.

How much of these expenses can you deduct?

First, take the item that is used 100%: $17 toy x 6.5% tax = $18.11 deduction.

Second, add up the shared items: $29 cleaning supplies, $10 light bulbs, and $41 fertilizer = $80 x 6.5% tax = $85.20. Then multiply this total by the Time-Space Percentage of 40% = $34.08

Total deduction: $18.11 + $34.08 = $52.19.

How does this apply to deducting credit card interest?

If your current monthly credit card statement includes $35 in interest charges, then look at your last statement and go through the same calculation analysis as described above.

If all of the items on your credit card statement are 100% then it's simple: deduct 100% of the interest. If all of the items are shared: multiply the interest by your Time-Space Percentage.

If your interest charges reflect unpaid balances going back more than one month, then it will be extremely difficult to sort out how much of the interest you can deduct. You could make a rough estimate of the interest charges associated with your business purchases. It's better to make an educated guess, rather than not claiming any interest deduction.

Note: You always want to pay off your credit card bills in full at the end of each month! If you can't afford it, it's a sign that you are overspending.

Tom Copeland - www.tomcopelandblog.com