News > Are Credit Card Fees Tax Deductible for Businesses?

Are Credit Card Fees Tax Deductible for Businesses?

Businesses are in luck. Unlike individuals, businesses are able to deduct credit card fees and finance charges when paying taxes. However, taxes largely depend on whether the credit cards were used for business expenses. The IRS allows deductions for most business credit card fees incurred from business expenses. These fees need to be associated with the business to be deducted.

Business Expense Categories

The IRS guide to business expenses details charges that qualify for tax deductions. Most charges incurred by a business for business-related expenses are eligible for tax deduction. This includes:

Advertising & marketing
Bank fees
Credit card fees
Employee wages & health benefits
Insurance
Legal fees
Maintenance & repairs
Rent
Utilities

The amount of your deduction depends on what percentage of charges on your credit card are for business.

Form 1120

Form 1120 is the tax form used by C corporations and LLCs filing as corporations. A C corp is a company in which owners and shareholders are taxed separately from the company. C corps are also subject to corporate income taxes. Form 1120 provides a section in which C corps can deduct business expenses, including credit card fees, from their business’s income taxes.

Schedule C (Form 1040)

Schedule C (IRS Form 1040) allows sole proprietors to file their income taxes for a business or profession that they operate. Eligible business expenses for tax deductions include expenses for activities in which the purpose of the activity is for profit and the sole proprietor is regularly involved.

Capital Expenses

When businesses are performing well, there may come a time when they want a physical upgrade or expansion of their assets. Buying or upgrading company assets, such as properties, buildings, vehicles, or equipment, is considered a capital expenditure. Capital expenses are considered by the IRS as investments. For this reason, capital expenditures are not as easily deducted when filing taxes. Schedule 179 allows businesses to deduct some capital expenses by considering them normal expenses. This type of deduction has a limit when it comes to capital expenses and only applies to certain properties.

Are Transaction Fees Tax Deductible?

Most transaction fees are tax deductible for businesses, if they are considered to be normal expenses incurred by the business that directly relate to business operations. It is important to keep records of any payment processing and transaction fees that you plan to deduct when filing your business’s income taxes. By deducting transaction fees when filing your taxes, your business can improve tax savings by reducing the amount of taxable income.

Tips for Writing Off Payment Processing Fees

Are you preparing to file business taxes and want to deduct qualifying payment processing fees from your business income tax? Here are a few tips to maximize your return and reduce taxable income:

Keep records: retain invoices, receipts, statements, and other billing documentation that provides evidence of your payment processing fees.
Understand IRS tax laws: to deduct payment processing fees from your taxes, first make sure that your charges are business expenses eligible under IRS guidelines.
Consult with your tax professional: if you are unsure about whether or not your payment processing fees are tax deductible, consult with a financial professional to avoid any errors when filing.
Separate business and personal expenses: only business expenses are eligible for a tax deduction. By separating business expenses from personal expenses, you are ensuring that your tax deductible payment processing fees are categorized correctly
Use the right tax forms: Business expenses must be filed in the right tax forms to be eligible for tax deduction. For example, C corporations use Form 1120 while sole proprietors use Form 1040.
Stay up to date on IRS changes: the IRS is constantly making changes to the tax filing process and rules for what is eligible for deductions. By staying up to date, you can avoid any errors when filing your taxes while also ensuring that your business maximizes tax deduction opportunities.

It is important to keep in mind that businesses can deduct credit card fees from their taxable income, but individuals cannot. You are only allowed to deduct business-related expenses when filing your taxes. Making sure that individual charges are separate from business transactions can make tax filing easier while avoiding issues with the IRS.