Are Bank Fees Tax Deductible?

Bank fees can be imposed for a variety of reasons. For instance, there may be a monthly service fee charged for a checking account that does not keep its minimum required balance. If you have a Certificate of Deposit account and you make an early withdrawal, that could also subject you to an early withdrawal fee. Other types of bank fees include overdraft fees, credit card fees, annual fees, interest charges, printing certified checks, chargeback fees, and the list goes on.

The big question that many people have is, are bank fees tax deductible for personal and business taxes? Let’s start with the personal taxes first.

Individual entities who file personal income tax returns cannot deduct their bank fees. Why would they ever be able to? The fees they’re charged pertain to a personal checking or savings account which has nothing to do with their main source of income

People who work for employers and receive paychecks every week cannot deduct bank fees. The only situation where they’d be able to deduct a bank fee is if the bank charged them a fee for cashing their paycheck. Otherwise, the personal income earned is considered separate from the responsibilities of the bank account.

However, tax deductions are much different when it comes to business taxes.

Bank fees can be tax deductible on either a corporate income tax return or a personal income tax return where the filer is identifying themselves as a sole proprietorship. This sole proprietorship entity is often declared by an individual who is self-employed and doesn’t want to pay two income taxes by filing a business tax return as well. Meanwhile, they can still declare deductions on Schedule SE of their personal tax return.

Bank fees are deductible if they pertain to the person’s business in some way. For example, if you run an online business, you need to apply for a commercial bank account under a company name. All the money you collect from customers must go into that account. If you do this, any banking fees imposed on that account are tax deductible. This could be monthly maintenance charges, check printing fees, bill pay service fees, annual fees, and so on.

It is crucial that you separate your personal bank account from your business. If you use your personal bank account to collect payments from customers, then you cannot deduct those bank fees on your tax return. You must show that you have a legitimate business by having a commercial bank account for it. That is the only way a deduction will be possible for the bank fees.

Banks.org does not provide tax, accounting, or legal advice. This article is for informational purposes only, and is not intended to provide, and should not be relied on for, tax, accounting, or legal advice. Readers should consult their tax advisors concerning their particular situations.