If You Have Credit Card Debt, Do This Before Filing Taxes
If you’ve got credit card debt, you’re certainly not alone. According to a report from the Century Foundation and Protect Borrowers, record numbers of Americans are unable to pay off their credit card balances each month — about 111 million people. Despite the financial burden of credit card debt, those balances don’t pause tax obligations — and if you’re one of those 111 million, you still have to file and pay your taxes on time.
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So how do you balance credit card debt and tax season at the same time? Ideally, you’d have a financial expert or tax preparer in your corner. To help, MoneyLion spoke with Kyle Paxton, a CPA and real estate tax director at James Moore & Co.
“Credit card debt is a common stressor for individuals and business owners alike, and it can sneak into your tax planning if you’re not careful,” he said. “Before you file, here’s what I advise.”
1. Review Your Interest Payments
Sitting down with your credit card statements to determine how much interest you’ve paid may not sound appealing, but Paxton says the effort can pay off — especially if you’re a business owner.
“Interest on personal credit cards isn’t deductible, but interest on business credit cards is,” he said. “Make sure you’re separating personal from business expenses before filing to maximize deductions and avoid errors.”
This step matters before you file because misclassifying interest can mean missing deductions — or triggering red flags with the IRS.
2. Pay Down What You Can
Prioritizing high-interest credit card debt is a bedrock of smart financial advice for good reason. High-interest debt is costly in more ways than one: It compounds quickly and can drive up your credit utilization ratio, which may lower your credit score.
By paying down balances, you stop interest from compounding — saving money over time and freeing up cash flow. This is good practice year-round, but it’s especially important if you expect to owe taxes.
“Every dollar paid before year-end reduces your overall interest burden and strengthens your balance sheet,” Paxton said. “If possible, focus on high-interest cards first — it’s a guaranteed ‘return’ on your money.”
3. Consider the Timing of Large Purchases
Were you planning to use credit to cover significant business expenses? Paxton wants you to be strategic about your timing.
“For cash-basis taxpayers, paying before year-end may allow you to claim the deduction on this year’s return, lowering taxable income,” he said.
Waiting until after you file could delay that deduction by an entire year — which matters if cash is tight.
4. Evaluate Your Cash Flow for Tax Payments
Paxton understands that paying down debt while also setting aside money for taxes can feel overwhelming. It’s tempting to throw every available dollar toward paying down your debt. But he also doesn’t want you to be caught unprepared to pay a surprise tax bill or to stay stuck waiting on a refund to help you pay off your debt.
“Paying down debt while setting aside funds for taxes may feel tight, but it keeps you from juggling multiple high-interest balances while waiting for your refund,” he said. “Consider splitting your resources between debt reduction and estimated tax payments.”
Balance is key. Don’t devote all your money to one issue while ignoring the other. You’re better off handling both — a little at a time — so neither becomes unmanageable.
5. Plan Ahead for Next Year
If credit card debt has made this tax season stressful, Paxton suggests using it as a reset. Filing is a natural checkpoint to rethink your budget and your approach to credit while also taking steps to get out of debt.
“If your business or personal spending relies heavily on credit cards, plan a budget that allows tax payments and minimizes interest," he said. "The IRS won’t negotiate your interest charges, but you can."
The Bottom Line
As millions of Americans with credit card debt also prepare to file their taxes, Paxton offers some final words of wisdom:
“Credit card debt and taxes often collide around year-end," he said. "By reviewing your expenses, paying strategically and understanding which interest is deductible, you’ll save more and avoid surprises. A proactive approach now keeps both your taxes and your wallet in better shape.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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