Credit Card Fees Can Be Tax Deductible
At the beginning of each year, business owners look ahead and focus on what’s next in store for their business. One task on that list is filing taxes. For merchants who have done a good job of tracking receipts and documenting business expenses, this task is much easier. And for everyone else, it’s pulling reports and compiling information to provide to a financial accountant by the dreaded April deadline.
Processing Fees Are Tax-Deductible
For many merchants, the idea of claiming credit card acceptance fees as tax deductible wouldn’t cross their minds. But it should. The IRS recognizes merchant fees (commonly referred to as credit card fees) as an essential operating cost. So, that means that yes, businesses can claim the merchant processing fees they’ve accrued the year prior as a tax-deductible expense.
Both individuals and businesses have the potential opportunity to deduct expenses from their gross income to lower the amount of money they pay in annual taxes to the Internal Revenue Service (IRS). The provisions and deduction procedures for individuals and businesses are different so it is important to understand which ones apply. In general, pretty much anything pertaining to a credit card is not tax-deductible as a personal itemized deduction but is tax-deductible for a business.
Details on Processing Fee Deductions
The IRS has a detailed breakdown of changes, exceptions, and points of note in their Publication 535. This publication gives businesses everything they need to know about business expenses and tax season. In summary:
- Merchant service fees are a tax-deductible cost of running a business.
- Businesses can deduct the full cost of merchant services fees on line 17 of their Schedule C (Legal and Professional Services) form.
- Merchant processors are required to provide a 1099-K no later than January 31st, detailing the payment card and third-party network transactions – this will also have the details needed to deduct the fees on a Schedule C.
- The deduction doesn’t affect a company’s total tax liability; the tax deduction is subtracted from its gross earnings which will lower the total taxable income amount.
- Businesses are eligible to deduct credit or debit card processing fees associated with paying taxes, but individuals are not.
Learn More About Our Payment Solutions:
Contact us online or call 1-800-621-8931.
Subscribe to Card Talk
Our monthly newsletter delivers the latest payments news straight to your inbox