Are bank fees deductible?
Bank fees tied to business accounts (e.g., maintenance, wire, or transaction charges) are tax-deductible operating expenses, as long as they’re ordinary and necessary for running the business.
What are bank fees?
Bank fees are charges imposed by financial institutions for maintaining accounts, transferring funds, or processing payments. When these fees stem from business banking activity, rather than personal accounts, they qualify as deductible operating expenses. The IRS allows deductions for bank-related costs as long as they’re directly tied to business transactions.
How to categorize bank fees
- Record as Operating Expenses in your income statement.
- Use a “Bank Fees” or “Financial Service Charges” account in your chart of accounts.
- Include both regular and transaction-based fees from business checking, savings, or merchant accounts.
- Exclude personal account fees; only business-related banking costs qualify.
- Separate interest expense (deductible under a different category) from service charges and penalties.
Examples of deductible bank fees
- Monthly maintenance or account service fees.
- Wire transfer and ACH transaction fees.
- Overdraft protection or insufficient funds fees (for business accounts).
- Merchant processing and card transaction fees.
- Check printing or deposit fees.
- Fees for business credit cards or corporate accounts.
- Account setup or annual service charges.
Tax implications for bank fees
- Business bank fees are fully tax-deductible as ordinary and necessary expenses.
- Deduct them in the year they’re incurred or paid.
- Credit card annual fees and transaction costs for business purchases also qualify.
- Late payment fees on business accounts are deductible, but tax penalties or interest on underpaid taxes are not deductible.
- Keep monthly bank statements and receipts as supporting documentation.
- Report bank fees on Schedule C (for sole proprietors) or under “Bank Charges” or “Financial Expenses” on your business tax return.
