Are Credit Card Processing Fees Tax Deductible?

As the deadline for personal taxes nears on April 15 (or October 15 with an extension), businesses are trying to find ways to save money. One area worth looking into is the fees you pay for processing credit card payments for your business.

Did you know that you can write off credit card processing fees? Credit card processing fees are the fees your business pays a merchant services provider to accept card payments from your customers. Fortunately, the IRS has determined these fees are tax deductible.

Which expenses are deductible?

For many businesses, the idea of filing taxes can be overwhelming. There are thousands of laws and regulations to navigate and serious consequences if you underestimate or overestimate your taxable income. How can you know which expenses are tax deductible, and which are not?

The most basic rule of thumb comes from the IRS itself. You (and your accountant) will be on the lookout for what the IRS calls “necessary” and “ordinary” expenses. According to the IRS, an ordinary expense “is one that is common and accepted in your trade or business,” while a necessary expense “is one that is helpful and appropriate for your trade or business.” In order to qualify as tax-deductible, an expense must be both ordinary and necessary.

Are credit card fees tax deductible?

Yes, credit card processing fees, also known as merchant service fees, are deductible. They are considered ordinary and necessary for businesses of all sizes, making them eligible for a write-off. Deducting these fees from your taxable income can provide your business with some much-needed capital.

What credit card fees are tax deductible?

For businesses trying to manage money wisely, it’s important to know which credit card fees can be written off. Here, are six types of deductible fees:

• Flat rate fees
• Markup fees
• Per-transaction fees
• Authorization fees
• PCI compliance fees
• Statement fees

Depending on your merchant services provider, you may incur all of these fees or only a few. However, the best merchant services providers offer transparent pricing structures, don’t charge unnecessary fees, and can even help you read your monthly credit card processing statement to ensure you’re getting a fair price. If you can reduce the amount you pay in credit card processing fees upfront, then you’ll have less work to do when the filing deadline rolls around.

How to deduct credit card processing fees

In order to correctly deduct credit card processing fees when filing taxes, it’s imperative your business keeps detailed records of the fees incurred. At the beginning of the year, your credit card processor will send you form 1099-K (Payment Card and Third Party Network Transactions). This form is sent to both you and the IRS, and it lists your business’ gross income on credit and debit transactions for the past year. However, it does not list the fees you pay on credit card processing, so it’s vital to keep your own records on these expenses in order to give your accountant the most accurate information.

Finally, it’s important to stay up to date with tax law changes. The latest big tax reform was in 2017 and was the largest in over 30 years. President Trump signed the Tax Cuts and Job Act (TCJA) into law. The TCJA introduced many changes to the tax rules starting in 2018, so if you’re looking to get the most out of your tax filing, make sure to find an accountant who can navigate the ever-changing tax landscape and ensure your business receives the highest amount of deductions.