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Are Merchant Processing Fees Tax-Deductible?
The IRS has a detailed breakdown of changes, exceptions, and points of importance in their Publication 535 (sidenote: the IRS announced on January 22nd, 2024 that Publication 535 will not receive any future revisions. Because of this, the 2022 edition is the most up-to-date document for businesses to use). This publication gives businesses everything they need to know about business expenses and tax season. In summary:
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Merchant service fees are a tax-deductible cost of running your business.
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Businesses can deduct the full cost of merchant services fees on line 17 of their Schedule C (Legal and Professional Services) form.
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Your processor is required to provide a 1099-K no later than January 31st, detailing the payment card and third-party network transactions – this will also have the details you need to deduct the fees on your Schedule C.
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The deduction doesn’t affect your company’s total tax liability; the tax deduction is subtracted from your gross earnings which will lower the total taxable income amount.
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Businesses are eligible to deduct credit or debit card processing fees associated with paying taxes, but individuals are not.
Processing Fees Tax-Deductible
The IRS recognizes merchant fees (commonly referred to as credit card fees) as an essential operating cost. So, that means that, yes, businesses can claim the merchant processing fees they accrued in 2023 as a tax-deductible expense.
Additional Tax Season Resources
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For more information on tax season for businesses, you can visit the Business section on the IRS website.
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If you are a part of a corporation, you’ll fill out Form 1120. Any other businesses will fill out a Schedule C form.
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