If you had to pay a credit card fee, you may be able to take a tax deduction.
Personal Credit Card Fees
There is no specific tax deduction for personal credit card fees. The fees may fall under another deduction.
For example, many landlords now charge convenience fees to pay rent with a credit card. Since rent is not tax deductible, you can’t deduct the convenience fees.
On the other hand, medical expenses can qualify for an itemized tax deduction. If you pay a doctor with a credit card and have to pay a fee, you can usually count the fee as part of your medical expenses.
So credit card fees are generally deductible when the reason for the transaction is deductible.
Talk to a tax advisor to confirm whether specific fees are deductible.
Business Credit Card Fees — Expenses
If you get charged a credit card fee to pay a business expense, the credit card fee will almost always be deductible. As far as your tax write-offs are concerned, the fee is part of the business expense.
For example, it doesn’t matter if you make a $100 purchase with a 5% credit card fee or a $105 purchase with no credit card fee. Either way, you’re deducting $105.
One thing to watch out for is how credit card fees post in your accounting software.
You may see a single charge that has the total price with the fee. You can classify that charge according to what type of expense it was.
For example, if you bought printer paper, categorize the entire charge as office supplies.
Some companies split out the credit card fees. You may see two charges on your statement — one for the item and one for the credit card fee.
It’s not a good idea to merge the charges into a single transaction in your bookkeeping software. You want your financial statements to exactly match your receipts and credit card statements.
Having everything match makes life easier if you ever get audited.
You can choose how to categorize the credit card fees. You can either classify them according to the expense you paid or classify them as a separate credit card fees category.
The important thing is to be able to easily pull up your receipts and credit card statements if the IRS audits your expenses. So do whatever will be easier for you to follow a year or two after the transaction.
Business Credit Card Fees — Revenue
When you accept credit card payments from customers, you’ll usually have to pay a payment processing fee.
In most cases, you should record the entire sales price as income. That’s the sales price before the credit card fee.
Next, you’ll deduct the credit card fee as a separate payment processing fee expense.
There are two reasons for using this accounting method.
First, if you only record your net revenue instead of reporting the gross revenue and deducting the fee, you might get audited by the IRS. Since your Form 1099-K usually includes gross revenue before fees, reporting net revenue will make the IRS think you underreported your income.
Second, recording the credit card fees separately helps you better manage your inventory and profit margins. You want to see exactly where your money is going.
Taking a shortcut and only going by your net revenue makes it seem like you were selling less. If you switch to cash or check payments only or start passing on credit card processing fees to your customers, you don’t want your net sales going up when you aren’t actually selling more.
One thing to pay attention to is how you import your transactions into your accounting software.
If you go by your bank statements, you may only get the net amount deposited. You won’t see the gross selling price or the credit card fee.
You should track your sales directly through your credit card processor so you see both the gross sales and credit card fees. Record the bank deposits as a transfer from the credit card processor.
Most of the major credit card processors let you sync directly with QuickBooks so you can automatically track your credit card fees.