At the beginning of each new year, we ring out the old and usher in the new, wishing good health, fortune, and fun. For business owners, we also know it’s the beginning of the tax season. Suppose we’ve done a good job tracking receipts and documenting business expenses. In that case, 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 a smooth road ahead to the tax deadlines.
We’ve been in the Merchant Processing business for twenty years. Back then, we were still selling the old-fashioned knuckle busters with carbon receipts that displayed the credit cards’ full-track data. 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 technologies in hopes that they cooperate, such as e-commerce websites, accounting systems, and ERP systems. Finding efficiencies and cost-saving pivots is all the motivation we need; it’s another reason why we’re excited about this industry! It’s changed a lot and we’ve adapted accordingly. However, one thing hasn’t changed over the years: a new year brings in a new tax season, and this year’s season began on January 29th. The IRS has announced many different forms of business expenses that merchants can write off – are credit card processing fees on the list?
Are 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.
Talk with our merchant expert
Book a time to chat with Don, our merchant expert, and learn how Evolve Payment can advocate for your business and save 20%-40% on processing fees.
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:
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 will lower 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?
Whether in a B2C or B2B setting, business owners tend to 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 merchants, and we do this by understanding how their business interacts with clients. This is especially relevant around tax season since we want to save merchants as much money as possible on their taxes.
More Suggestions for Merchants
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.
If you’re interested in learning ways to reduce your processing fees, our 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!