What You Should Know About Deducting Bank Fees on Your Taxes
If you’re trying to lower your tax liability or boost your tax return, you may be wondering what you can claim. Are bank fees tax deductible?
March 3 2022, Published 9:40 a.m. ET
If you’re self-employed by running a restaurant, driving for Uber, or training dogs, you may incur various charges for the banking services you use. The IRS offers small business owners a number of tax write-off opportunities through deductions and credits. Are bank fees tax deductible?
While deductions and credits are designed to reduce your tax liability, they work differently. A deduction is an expense you can subtract from your taxable income, thereby reducing your taxable income and your tax bill. A credit, on the other hand, is an amount of money you can subtract directly from your tax bill. If your tax liability is $2,000 and you claim $1,500 in tax credits, your net tax bill would drop to $500.
Both deductions and credits are tax write-offs. The IRS sets the deductions and credits that individuals and businesses may claim on their tax returns. Applying these write-offs may not only reduce your tax bill but also boost your tax refund.
Are bank fees tax deductible?
The IRS allows you to write off bank service charges related to running your business. Deductible bank charges include overdraft fees, monthly service fees, and transfer fees. You may also deduct merchant transaction fees charged by third-party payments processors such as PayPal, Square, or Stripe.
However, you should be cautious when claiming bank fees as a deduction on your tax returns. The IRS doesn’t allow deduction of bank charges related to a personal bank account or credit card. Therefore, it’s wise to have separate bank accounts and credit cards for personal and business use.
How to deduct bank fees on tax returns
If you use tax software such as TurboTax or H&R Block Tax Prep, you can claim bank service fee deductions under "other miscellaneous expenses." You’ll be able to name each specific expense item you want to claim.
Americans starting their own businesses have tax questions
In recent years, more American workers have been quitting their corporate jobs to start their own businesses. Some do it because they want to become their own boss, others do it because they want to do something they’re passionate about, and others do it because they seek more flexibility. Regardless of what's drawn you to self-employment, there will be tax issues to deal with, and it's important to understand them for your business to thrive.
