Are bank fees tax deductible? On a business account, generally yes: monthly service charges, wire fees and overdraft fees paid to run the business are ordinary business expenses, reported with other expenses on Schedule C. Fees on a personal checking or savings account are personal costs and are not deductible. Your statements list every fee for the total.
Are bank fees tax deductible on a business account?
Bank fees on an account used for a business are generally deductible as business expenses. IRS Publication 334, the small business tax guide, lists bank fees among the other expenses a business may be able to deduct, alongside advertising, supplies and utilities. A deductible business expense must be ordinary and necessary for your trade.
Typical business account fees that fit:
- Monthly maintenance or service charges.
- Wire transfer and ACH fees for paying suppliers or receiving client payments.
- Overdraft and returned item fees on the business account.
- Fees for a business card's annual membership, when the card is used for the business.
- Check printing and stop payment fees.
Sole proprietors list these in Part V of Schedule C. The IRS Instructions for Schedule C say to list the type and amount of each other expense separately there and carry the total to line 27b.
Why are personal bank fees not deductible?
Personal bank fees are not deductible because they are personal, living and family expenses, and Pub 334 lists those among the expenses you cannot deduct. The monthly charge on a household checking account, an ATM fee on a holiday or an overdraft on a personal card is a cost of everyday life, not of earning income.
That holds even when the fee feels unfair. A $35 overdraft charge on a personal account cannot be written off. The only way to get it back is to ask the bank to waive it.
Bank fees on an account used for both business and personal spending
When one account serves both your business and your household, its fees are a mixed expense. Pub 334 says to separate the personal part of a partly business expense from the business part, and that the personal part is generally not deductible. A fee caused by one business transaction, such as a wire to a supplier, is fully business.
For fees not tied to one transaction, such as the monthly service charge, pick a reasonable business share. One method is the share of the account's transactions that were business in a sample month. Write down how you chose the share, then apply it to every month. The same reasoning appears in the guide to the phone and internet tax deduction, where a single bill also serves two purposes.
Opening a separate business account ends the guesswork. Its fees are all business, and its statements become the business's record.
Totaling a year of deductible bank fees from statements
A year's bank fees come straight off the statements: search each month for rows the bank labels as fees or charges, put them in one table, and total them by type. Fees are often small and easy to overlook. Twelve months of them can add up to more than people expect.
The table is an example for a small business checking account, with invented amounts.
| Fee type | Count in year | Each | Year total |
|---|---|---|---|
| Monthly service charge | 12 | 15.00 | 180.00 |
| Outgoing domestic wire | 4 | 25.00 | 100.00 |
| Incoming wire | 3 | 15.00 | 45.00 |
| Overdraft fee | 1 | 35.00 | 35.00 |
| Check order | 1 | 42.50 | 42.50 |
| Total to Part V, line 27b | 402.50 |
Search the description column for words like FEE, CHARGE, SERVICE and WIRE, and check each match. If the statements are PDFs, putting them into a spreadsheet makes that search a single filter; CheapBankConvert, getting ready to open, plans to charge a few dollars per statement for that, with its early prices on the homepage.
If you report on the cash basis, each fee is deducted in the year the bank took it from the account, which is what the statement date shows. The guide to cash basis accounting for small business explains why the statement works as the record under that method. For the wider question of which statements to keep at tax time, see do I need bank statements for taxes.
Bank statement charges that look like fees but go elsewhere on Schedule C
Some statement charges look like bank fees but belong on other lines or nowhere. Interest on a business loan or business card is interest, which Schedule C reports on its own interest lines, 16a and 16b, not in Part V. Paying back loan principal is not an expense at all.
Other look-alikes:
- Card processing fees taken out of customer payments come from a payment processor, not your bank. Ask your preparer whether they belong on line 10, commissions and fees, or in Part V, then use the same line every year.
- Fines or penalties paid to a government cannot be deducted, according to the Schedule C instructions. A bank's late fee is a charge from a business, not a government penalty.
- Foreign transaction fees on a business card used for a business purchase are business costs, while the same fee on a personal trip is personal.
Keep these in their own rows in the fee table, marked with the line they go to, so the Part V total holds only true bank fees.