Are Credit Card Fees Tax Deductible?
The short answer? Yes! Although credit card fees are not deductible for individuals, they ARE deductible for businesses. This means all of the fees and charges from your credit card processor can be written off when it comes to tax season.
As business owners, we’re always looking for ways to save a bit of money when it comes to tax season. Taking legal advantage of the breaks the government gives to certain businesses can save you money and peace of mind. Many business owners often overlook credit card fees and other associated processing costs as potential expense deductions. Subtracting expenses like these from your gross income saves money on your taxes.
We always recommend negotiating and evaluating your credit card processor to make sure you’re getting the best rate possible. It does soften the blow though knowing that you can write off any processing fees.
Can I Deduct Credit Card Fees As An Individual?
Unfortunately, you cannot deduct credit card fees incurred from personal expenses and personal credit cards. Since the Tax Cuts and Jobs Act was signed into law, the standard deduction amount was increased leading to less of a need for itemized deductions. Nevertheless, individuals were not able to deduct various credit card charges and fees prior to the act anyway.
Can I Write Off The Processing Fees Associated With My Merchant Account?
Although you can’t write off personal credit card fees, you ARE able to write off any expenses that you incur while accepting credit cards via your merchant account or other forms of digital payments. Different processors have different fee structures; there are flat fees, percentages, per transaction fees, gateway fees and more! All of these fees are considered business expenses and can be written off when tax season comes around.
To qualify as a “business expense” an expense must be both “ordinary” and “necessary”. Ordinary means that the expense is common in your industry or area of business. Necessary means that it is an expense that helps you conduct business. Since accepting credit cards is commonplace in nearly every modern industry, all expenses related to diversifying your digital payment options can qualify as both “ordinary and necessary”.
Business expenses are tax deductions. Make sure to differentiate deductions from tax credits. While tax credits allow individuals to directly subtract a certain amount from their final taxes due, deductions are subtracted from your business income. What is left is called “taxable income.”
To correctly write off your processing fees, make sure to keep careful and accurate records of all fees incurred. You will want to create a system for saving bills and tracking fees month to month as adding everything up at the end of the year can be overwhelming.
Can I Write Off Fees And Interest From My Business Credit Card? Are Credit Fees Taxable?
Keep in mind that you can also write off any annual fees, monthly fees or late fees from purchasing credit cards that are under your business name as long as the charges are actually associated with your business. You can find out what other allowable deductions there are for your industry by reviewing the IRS Publication 535. If it’s an expense you’ve only had because of your business conduct business, or if it’s an expense required for your type of work, it’s safe to bet it will be on this list.
Don’t forget that the IRS does request both documentation and relevance and that the expense must be related to your business and not your personal finances. An easy way to keep your books separate is to open a specific bank account and credit card(s) for your business and reserve them for business use only. That way, you can clearly sort out which purchases and charges are true expenses and which are simply personal spending.
Where Do Credit Card Fees Go On A Schedule C?
Depending on what type of business you own, you (or more likely your bookkeeper and accountant) will either file a Schedule C or Form 1120 (for corporations). On either form, credit card and merchant account related business expenses can be listed under “miscellaneous expenses”. Simply tally all of your related credit card expenses and add them to your other items in that category.
Please keep in mind that no one on the Durango Merchant Services team is a CPA and nothing written on this blog or this website can be considered legal tax advice. We always recommend you consult with your trained tax professional about all deductions as tax laws and requirements frequently change. However if you ARE looking at your years worth of credit card fees and wondering if you can save some money, we’re here to help! Give us a call for a free consultation and rate analysis. We’ll be able to tell you if we can save you money ASAP.