Credit card fees are a hassle, but if they’re paid for a business, they can be tax-deductible. These credit-card-related fees include balance transfer charges, interest charges, and cash advance fees.

Credit Card Fees explained

There are many fees that credit card companies charge for personal and business cards.

• Annual fees
• Late fees
• Interest rates
• Transfer costs for balance
• Cash advance fees

These fees, such annual fees, can be charged regardless of how often you use your card. Some fees are only applicable if your card is used for specific actions like a cash advance, balance transfer or balance transfer. The fees charged vary from card to card. Some cards have no annual fees, while others can charge hundreds of dollars each year.

Credit card companies charge additional fees for using or having a credit card. They also require merchants that accept credit cards to pay processing fees for every credit card transaction that they accept. These fees usually amount to a few cents per transaction plus a small percentage from the sale amount.

Credit card companies will accept liability for fraudulent use of a customer’s card or attempts to cancel the transaction later.

Who can deduct credit card fees?

Businesses can deduct credit card fees from their taxes. The type of form you choose will depend on the business structure.

• Form 1120 is used to file as a C Corp for incorporated entities such as limited liability corporations (LLCs). For S Corp, use Form 1120-S
• File for Partnership using Form 1065.
• Solo proprietors and unincorporated business owners can deduct credit card fees as qualifying business expenses by using Schedule C.

You must prove that the fee was a business expense to be eligible for this exemption. You can’t deduct the entire annual fee if you only use your personal credit card for gas for business vehicles once per year. Business owners should have separate credit cards and bank accounts for business expenses. This allows them to keep track of both personal and business expenses.

Another reason businesses should keep their finances separate is that mingling personal and business money can lead to business owners having to give up liability protections offered to LLCs. These cases may allow courts to “pierce” the veil and hold directors and shareholders of a business liable for any damages they cause.

Business vs. Personal Credit Card Fees

Although credit card companies may charge fees for personal and business credit cards, only businesses are allowed to deduct these fees. Businesses cannot claim fees as deductible business expenses unless they are directly related to the business.

These requirements are important because business owners frequently use their personal credit cards for business expenses. They may also use their business cards to pay for personal expenses. These two actions may make it harder to deduct credit card fees because the expenses must directly relate to business (and only business).

Credit Card Fees Deductions for Businesses

IRS Publication 55 states that businesses can deduct 100% for credit card expenses only used for business purposes. A business owner who uses a personal card to conduct business can only deduct a portion of the fee. This means that they can only deduct the amount of business-related fees. If 10% of your personal credit card usage is for business expenses you can deduct 10% from your taxes.

Businesses can deduct credit card transaction fees from credit card payments they receive from customers, in addition to the fees associated with having or using credit cards. This is the difference between the gross sales amount of a business and the net payment received by their merchant service provider.

Businesses can deduct fees paid to financing institutions, such as interest, fees, or other expenses, in addition to credit card fees. However, this is only for legitimate business purposes. Businesses can deduct bank fees such as check-printing fees and stop-payment fees.

Common Mistakes in Deducting Credit Card Fees

It is easy to deduct credit card fees. If they are for business, you may. However, people make it more difficult or complicated than necessary. This is one of the most common ways people do it. They don’t keep separate accounts for business and personal expenses.

These are the top mistakes people make when they deduct credit card fees

• Allowing personal cards to be used for business expenses. It’s much more difficult to identify which fees are business-related.
• Credit card interest can be deducted from a personal tax return. Individuals are able to deduct mortgage interest on personal tax returns. However, many people mistakenly believe they can also deduct credit card interests.
• Credit card fees not directly related to business: Tax deductions for credit card fees
• Processing fees that are double deducted: Many owners of businesses claim only the money they receive from merchant service providers as income. If they claim that amount as income, they cannot deduct credit card transaction fees again.

Credit cards come with fees and expenses. These are not only for using the card but also for accepting it. These charges can be deducted from your tax, but only businesses can do so, and only if they are related to legitimate business expenses.

Deduct credit card fees from your taxes. Make sure you keep a detailed accounting of all fees. It’s best to have multiple cards, including one you use for business purposes. This will make it easier to track all fees. Although this requires more planning, it’s far easier than using a personal business card and trying to determine what tax deductions are available.

Tax season is upon us and filing taxes for small business owners can seem confusing. This article shows you how to take a deduction that you might not have known about.

Are you a small business owner looking to upgrade your credit card processing system to increase your ability to accept credit cards? Balanced Processing Partners is a payment processing consulting company that can help you choose the right option for you.

Want to learn more contact us at (800) 354-6256 or via email [email protected].