Are Bank Fees Tax-Deductible? How To Save on Overdraft Fees and More

Are Bank Fees Tax-Deductible? How To Save on Overdraft Fees and More

by
Gina Evans, EA
Updated 
September 12, 2023
June 24, 2022
Icon check
Reviewed by
a tax professional
Tax guide
Are Bank Fees Tax-Deductible? How To Save on Overdraft Fees and More
by
Gina Evans, EA
Updated 
September 12, 2023
June 24, 2022
Icon check
Reviewed by
a tax professional

Let’s be real, paying a bank fee is about as popular as paying your tax bill. There’s some good news, though: If you’re a freelancer, gig worker, or otherwise self-employed, those annoying bank fees can actually save you money on your taxes.

It’s true. Many bank fees count as a business expense, which means you can write them off on your taxes — if you do it correctly!

Contents

When can you deduct your bank fees as a business expense?

You can write off your bank fees as a business expense if the following things are both true:

  • ✓ They’re fees that are “ordinary and necessary” to your line of work
  • ✓ They’ve happened on a business bank account

But what does this really mean? Let’s take a closer look at both these requirements!

{write_off_block}

✓ If your charges are “ordinary and necessary”

The IRS defines business expenses as costs that are both ordinary and necessary for you to operate your business. That generally means they have to be typical of your industry.

A freelance web developer, for example, would have a hard time proving steel-toed boots are ordinary and necessary. Why? Almost no other web developers are writing them off. 

Bank fees are usually considered ordinary and necessary — as long as they get charged through the normal course of running your business. (We’ll go over some examples that don’t count in a bit!)

✓ If they’re on a separate business bank account

Your bank fees are only tax-deductible if they’re on a business bank account.

Sorry, but fees on your personal account don’t qualify — even if you can prove they were related to your business.

You don’t have to open a business bank account just because you’re self-employed. But if you find yourself paying overdraft fees regularly as a result of your business, it might be time to look into a dedicated business account.

That way, you can at least get some of that money back at tax time. 

When is a bank fee not tax-deductible?

Your bank fees won’t be tax-deductible if:

  • ✘ They weren’t incurred for work purposes
  • ✘ They’re considered excessive by the IRS

Let’s talk through these with a couple of examples.

✘ If your charges were incurred outside of work

For example, say you’re a DoorDash driver who travels to Bangladesh — a country where DoorDash doesn’t operate. Any foreign bank fees you pay there would clearly not be tax-deductible.

✘ If your charges were excessive

This is a bit of a gray area. We’re talking about bank fees that typically count as work expenses, but racked up at such high levels that the IRS raises an eyebrow.

This was the situation in the 1991 Tax Court case of Bailey v. Commissioner. The Baileys, who owned a laundromat, tried to write off almost $70,000 in overdraft fees, calling them ordinary and necessary expenses.

The court ruled against them, arguing that the “unreasonableness of the amounts” they were overdrafted made their bank fees out of the ordinary and definitely not necessary.

You’re probably not paying tens of thousands in overdraft fees. But it can still be hard to know what counts as “ordinary and necessary.” That’s why Keeper exists. It scans your transactions, and automatically writes off the ones you can deduct from your taxes based on what you do for work!

{upsell_block}

5 bank fees you can write off

Now that you know what doesn’t count, let’s break down the most common business banking fees you can write off on your taxes.

🗓️ Maintenance fees

Starting with the most obvious: If your bank charges you a monthly fee just to have an active account, that expense is both ordinary and necessary!

Even the best banks for small businesses sometimes have maintenance fees. They’ve got to fund their business somehow. Besides, if the service is excellent and the fee is small, working with a trustworthy bank can often be worth the cost.

💵 Overdraft fees

Suppose you drive for Uber and you gave your car a tune up, but forgot to check your account before you swiped your business credit card at the repair shop. You now have a $35 overdraft fee.

Is this tax-deductible?

Absolutely!

The key is making sure the purchase that got you an overdraft fee is something you bought for work. Getting neon rims doesn’t help you get a higher star rating, so an overdraft fee for that purchase wouldn’t qualify. But changing your oil would.

Just be careful not to go overboard. The occasional lapse is fine. But like we mentioned above, racking up thousands of dollars in overdraft fees will make the IRS ask questions.

Truly outrageously excessive overdraft fees can result in an IRS audit letter landing in your mailbox (or even a day in tax court)!

{email_capture}

↩️ Transaction and transfer fees

Usually, business accounts are allowed a certain number of transactions, deposits, and transfers a month for free. Once you go beyond that, they start charging.

Since these transactions are literally the cost of doing business, feel free to write them off on your taxes!

📦 Returned item fees

Maybe your customer bounced a check. Or maybe you’re an indie author who sold a bunch of ebooks on Amazon, only to have readers return them all – leaving you owing money to the retail giant.

No matter what happened, it hurts to pay for someone else’s mistake. However, being able to write it off should help soften the sting.

✈️ Business travel-related charges

Bank fees that occur because of travel are 100% tax-deductible. Of course, that’s assuming you’re traveling for work. (Sorry, no sneaky romantic holidays for you!)

The most common travel-related bank expenses are:

  • 💱 Exchange fees
  • 🗺️ Foreign transaction fees
  • 🏧 ATM fees

But we all know banks love to charge travelers, so if your bank throws anything else at you while you’re away, definitely write it off!

How to deduct bank fees on your taxes

Now that you know you can deduct bank fees, you’re probably wondering where to list them on your return.

The simplest answer is to let Keeper file your taxes for you! But if you’d rather do it yourself, this part is fairly straightforward.

{filing_upsell_block}

Bank fees go on your Schedule C

Where: Line 27a or line 10; line 24 if they’re travel related.

Like all business expenses, bank fees will get accounted for on your Schedule C. This form essentially breaks down your business’s profits and losses. It’s also where you fill in all your business write-offs.

On Schedule C, you’ll break your write-offs into different categories, each of which go on a different line on the form.

Bank fees usually fall under line 27a, “Other expenses,” or line 10, “Commissions and fees.” But if you paid for them while you were traveling for work, you can put them one line 24a, for “Travel."

Part II of a blank Schedule C with lines 10, 24a, and 27a circled in blue

And there you have it! While it’s never fun to pay extra money just to run your business, at least you can rest easy knowing those fees get offset with savings on your taxes.

Gina Evans, EA

Gina Evans, EA

websitetwitter-link

Gina is an Enrolled Agent with the IRS and has 5 years of tax experience. She enjoys hiking, kayaking and is an avid traveler.

Estimate tax saving

Over 1M freelancers trust Keeper with their taxes

Keeper is the top-rated all-in-one business expense tracker, tax filing service, and personal accountant.

Are Bank Fees Tax-Deductible? How To Save on Overdraft Fees and More
Are Bank Fees Tax-Deductible? How To Save on Overdraft Fees and More

Over 1M freelancers trust Keeper with their taxes

Keeper is the top-rated all-in-one business expense tracker, tax filing service, and personal accountant.

Are Bank Fees Tax-Deductible? How To Save on Overdraft Fees and More
Are Bank Fees Tax-Deductible? How To Save on Overdraft Fees and More

Over 1M freelancers trust Keeper with their taxes

Keeper is the top-rated all-in-one business expense tracker, tax filing service, and personal accountant.

Expense tracking has never been easier

Keeper is the top-rated all-in-one business expense tracker, tax filing service, and personal accountant.

Get started
Free Resource
I’m a self-employed ...
Lyft / Uber driver
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Actor
Adult entertainer
Airbnb host
Amazon Flex driver
Artist
Athlete
Attorney
Audio engineer
Beekeeper
Blogger
Brewer
Car rental provider
Caterer
Chauffeur
Chef
Childcare provider
Chiropractor
Cleaner / housekeeper
Commercial painter
Community manager
Computer technician
Construction contractor
Consultant
Content creator
Costume / fashion designer
Customer support specialist
Delivery driver
Dentist
Designer
Dog walker
Doula
Electrician
EMT
Esthetician
Event planner
Exterminator
Farmer
Financial advisor
Firefighter
Florist
Hairstylist
HVAC technician
Insurance agent
Interior designer
Ironworker
Janitor / custodian
Lab technician
Landscaper
Lifeguard
Loan officer
Lyft / Uber driver
Machinist
Makeup artist
Marketer
Massage therapist
Mechanic
Medical biller / coder
Model
Mover
Musician
Nail tech
Notary / signing agent
Nutritionist / dietitian
Oil / gas contractor
Online seller
Personal concierge
Personal trainer
Pharmacy technician
Photographer
Physician
Plumber
Pressure washer owner
Property owner / real estate investor
Railroad contractor
Real estate agent
Recruiter
Referee
Salesperson
Security guard
Social worker
Sommelier
Streamer
Sports coach
Tattoo artist
Teacher / tutor
Therapist
Trader
Travel nurse
Translator / interpreter
Truck driver
Veterinarian
Virtual assistant
Web developer
Wedding planner
Welder
Writer
Yoga teacher

At Keeper, we’re on a mission to help people overcome the complexity of taxes. We’ve provided this information for educational purposes, and it does not constitute tax, legal, or accounting advice. If you would like a tax expert to clarify it for you, feel free to sign up for Keeper. You may also email support@keepertax.com with your questions.