Bank Fees Tax Deduction
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Are you self-employed or run a small business and want to know about bank fees tax deductions? Read this article to learn what bank fees you can deduct and how to do it.
Keeping an eye on unnecessary expenses and maximizing your tax deductions are important to self-employed, 1099 employee, and small business owners. Therefore, many self-employed people are interested in learning about bank fees tax deduction. Many ask themselves, are bank fees tax deductible for business?
In this article, we explain when bank fees are tax-deductible for businesses and how to write off bank fees.
Keep reading to learn.
Can you write-off bank fees?
Yes, you can write off bank fees as a business expense. You can take this deduction if you’re an Uber driver, a graphic designer, a realtor, or any other type of self-employed individual or a small business owner.
According to the IRS what makes an expense a business deduction is that the expense must be both ordinary and necessary for your business.
To determine if an expense is ordinary and necessary if it meets these two criteria:
- An expense is ordinary if it’s accepted and common in your industry.
- An expense is necessary if it’s appropriate and helpful for your business.
A great way to keep track of business expenses is with an expense tracker app like Falcon Expenses. Falcon Expenses allows you to snap pictures of paper receipts so that you never lose a receipt again. In addition, track mileage expenses with an auto-mileage tracker.
Are bank fees deductible on Schedule C?
The short answer is, Yes.
The explanation is below.
Most self-employed individuals, independent contractors, and gig workers work for themselves. What this means is they’re sole proprietors that have not formed any formal business entity. As a result, when self-employed individuals do their business taxes, they attach an IRS Schedule C to the personal income tax return.
Included on your IRS Schedule C form is a section where you add your business expense deductions. In this section, you would also include the amount of your bank fees tax deduction.
Many self-employed individuals use their personal bank accounts for work. However, there are many benefits of a business bank account. Therefore, we looking into opening a business bank account if you have not already.
Can you deduct overdraft fees?
Let’s say, for example, you’re a gig worker. You work as an Amazon Flex delivery driver. After a long day’s work, you had your car washed. However, you forgot to check the balance in your bank account before you had your car washed.
It turns out, you didn’t have enough money in your bank account to pay for the car wash. As a result, you were charged a $35 overdraft fee by your business bank. Now you’re asking yourself, is this deductible as an Amazon Flex expense?
The answer to this question is, yes.
Yes, you can deduct the overdraft fee from your business taxes.
The way you determine whether your overdraft bank fee is a deductible business expense is if the purchase was legitimately for your Amazon Flex delivery driver work. This would mean the expense was not related to anything.
What bank fees can you deduct from your business taxes?
Bank fees that you can deduct from your business taxes include the following:
- Overdraft fees (as explained in the example above)
- Insufficient funds fees
- Monthly maintenance fees
How to Write off bank fees
Self-employed, independent contractors and gig workers that don’t have a business entity such as an LLC or Corporation, bank fees deductions are written off on your Schedule C that you attach to your 1040 personal income tax return.
For business entities such as LLCs, C corps, and S corps bank fees deductions are written off on your business tax return, IRS Form 1120.
We recommend that you consult a tax professional when in doubt.
Related: The Complete List of Small Business and Self Employment Tax Write Offs
Conclusion
After reading this article you have learned what bank fees are deductible as a business expense. As long as your bank fees meet the requirements of what is considered an ordinary and necessary business expense in your industry. In addition, we’ve provided you with how to deduct bank fees from your taxes. Please feel free to contact me if you have any questions about business bank fees and what bank fees you can deduct from your business taxes. You can also email me just to say, hi. You can email me at, bsugarman@falconexpenses.com.
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I used to travel a lot for work. Doing my expenses frustrated me. I would delay submitting them and when I did, I would spend hours taping receipts to paper to scan for my boss. I knew there was a better solution, and I had a background in productivity software, so I created Falcon Expenses. I enjoy creating software that makes people’s lives easier.
In addition, I’m an avid skier and I enjoy hiking, sailing, and cooking.
