Tackling This Year’s Tax Season
At the beginning of each new year, we ring out the old and usher in the new, wishing for good health, fortune, and fun. For business owners, we also know it’s the beginning of the tax season. If we’ve done a good job at tracking receipts and documenting business expenses, it’s an easy process to gather all of those little pieces of paper, pull reports from the accounting system, complete the CPA’s workbook, and send the compiled information to your trusted financial partner. We cross our fingers in hopes that we have everything in order and that it’s a smooth road to the tax deadlines.
I’ve been in the Merchant Processing business for 20 years. When I first started, we were still selling the old-fashioned knuckle busters with carbon receipts that displayed the credit cards’ full-track data. Needless to say, technology has transformed electronic payment acceptance in more ways than one.
Today, our approach is quite a bit different. We discuss best security practices, card payment processing options to achieve the lowest processing rate, and integrations with multiple different technologies in hopes that they cooperate with one another, such as e-commerce websites, accounting systems, and ERP systems. Finding efficiencies and cost-saving pivots is all the motivation I need; it’s what keeps me excited about this industry, even after 20 years!
This year, due to the pandemic, tax filing deadlines were delayed. New rules are still being created for filing, which gives us the opportunity to connect with more clients and ask how we can assist with their pain points for the “year of the pandemic”.
A Little Hidden Gem Could Save You Thousands of Dollars
I was surprised to learn that several business owners weren’t aware that the IRS recognizes merchant fees (commonly referred to as credit card fees) as an essential operating cost. Businesses can, in fact, claim the merchant processing fees they’ve accrued throughout the year as a tax-deductible expense.
Here’s the Information You Need to Know to Take Advantage of this Opportunity:
- Merchant service fees are a tax-deductible cost of running your business
- Businesses can deduct the full cost of merchant services fees on line 17 of their Schedule C (Legal and Professional Services) form
- 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
- The deduction doesn’t affect your company’s total tax liability; the tax deduction is subtracted from your gross earnings which lowers the total taxable income amount
- Businesses are eligible to deduct credit or debit card processing fees associated with paying taxes, but individuals are not
Finding Hidden Value in Your Payment Process
When prospective clients ask us to review their rates, we focus not only on the interchange amounts being charged for their method of payment, but also look for efficiencies in the actual payment process. Do they have a retail environment (B2C), or do they have the more traditional B2B payment process where the card is not present?
Most business owners forget that administrative costs are just as important for reducing time and payroll costs as the actual fee itself. Again, taking a consultative approach is best for our clients, and we do this by understanding how their business interacts with clients. Some additional suggestions to find hidden value are:
- Create a secure online payment gateway and make it easy for your clients to pay you! We can help by adding a payment link to your website.
- Add the same payment link to your invoices – this can increase the speed of payments being made.
- Facilitate credit and debit card payments
- Set up recurring billing, or a billing program with payment terms – this can easily be automated with the right tools in place
- Accept mobile payments if you are physically in front of your customer
- Accept cryptocurrency payments
- Use email invoicing
- Set up ACH payments, as well as credit cards
Want to learn more about our consultative approach to merchant card processing?
If you’re interested in learning ways to reduce your processing fees, my team at Evolve Payment would love to schedule a consultation with you and learn more about your process, your technologies, and how we can help streamline your time and expenses!
The disclaimer our attorney would want us to make: **As with any financial tax advice, talk with your CPA on how and which tax deductions you take.