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Can I deduct are transaction fees tax deductible?

TL;DR

Transaction fees are generally deductible as a business expense if they are ordinary and necessary for your business operations. However, personal transaction fees are not deductible.

Detailed Answer

Transaction fees incurred in the course of conducting business, such as credit card processing fees, bank fees for business accounts, or fees from online payment platforms like PayPal, are deductible. These fees must be directly related to business transactions. Personal transaction fees, such as those from personal bank accounts or credit cards, are not deductible. For example, if you run an online store and pay a fee for each credit card transaction processed, these fees are deductible. However, if you incur a fee for transferring money between personal accounts, this is not deductible.

Where to Put It on the Tax Form

Schedule C, Line 27a (Other Expenses).

Real World Example

A freelance graphic designer uses PayPal to receive payments from clients. PayPal charges a 2.9% transaction fee plus $0.30 per transaction. If the designer receives $1,000 from a client, the fee would be $29.30. This fee is deductible as a business expense on Schedule C.

Audit Risk & Documentation Tips

Audit risk is moderate. Keep detailed records of all transaction fees, including monthly statements from payment processors or banks. Ensure that the fees are clearly related to business transactions. Maintain copies of invoices and receipts that correspond to these fees to substantiate the business purpose.

IRS Reference

IRS Publication 535, Business Expenses.

Relevant Industries

FreelancersE-commerceConsultantsRetailersService Providers

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Disclaimer: This is for informational purposes only and should not be construed as tax or legal advice. Always consult your tax advisor.

Page created on July 15, 2025

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