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Bank Fees and Tax Deductions

written by: Alia Nikolakopulos•edited by: Doreen Martel•updated: 3/7/2011

As high bank fees accumulate, you may ask "When can I deduct the cost of my bank account from my taxes?" This article discusses the situations that make you eligible to take the deduction and the types of fees you can deduct.

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    If you pay a lot in bank fees during the year, you may ask yourself, “Can I deduct the cost of my bank account from my taxes?" Since bank account fees have a tendency to add up quickly, this is an understandable question. As an individual taxpayer you should know that in some cases you can deduct the fees on your IRS 1040 personal income tax return.

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    Who Can Take the Deduction?

    Regular wage earning taxpayers can’t deduct the cost of a bank account on taxes; however if you’re self-employed or operate a limited liability company that has not made an election to be taxed as a corporation, you may deduct the bank fees as business expenses on your 1040 tax return. In addition, if you rent property for income, you can deduct the cost of your bank account as an expense related to rental activity.

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    Bank Fees That You Can Deduct

    ATM If you are eligible to deduct bank account fees, you can deduct virtually any bank fee that is necessary for maintaining an account for your self-employment or rental business activity. Examples of fees that are commonly deducted include service fees, overdraft fees and check card fees. You can also deduct ATM fees when the fee is associated with an eligible business transaction. Fees and interest for a credit card used for business activity also qualify for the deduction.

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    Claiming the Deduction

    If you are self-employed, have an unincorporated limited liability company, or receive 1099-MISC non-employee compensation, you must deduct your bank fees on IRS Schedule C, Profit or Loss from Business. Total your fees and report the expense in the “Other Expense" section at the bottom of the second page of the schedule. If your fees are associated with rental activity, total your expense and report the amount on IRS Schedule E, Supplemental Income and Loss. List the fees on line 18, and label your expense as “Bank Fees".

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    Deduction Benefit

    Claiming a deduction for your business related bank fees reduces your net income. Net income is the amount of your business income that is subject to income or self-employment tax. Your net income is determined by deducting expenses from the gross income you receive for these activities during the year. You can only deduct the cost of bank account fees from taxes in the year you pay them, but if you notice you did not claim all the expenses you are eligible to claim one year, you can amend your return for that period to reflect the correct amount of expense.

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    Resources

    Sources

    1. IRS: 2010 Instructions for Schedule C: Part V: Other Expenses - http://www.irs.gov/instructions/i1040sc/ch02.html#d0e1154
    2. IRS: 2010 Instructions for Schedule E: Income or Loss from Rental Real Estate and Royalties - http://www.irs.gov/instructions/i1040se/ch02.html#d0e382

    Image Credit

    ATM: Via morguefile/kevinrosseel