Merchant Account Fees Are Tax Deductible
As a business owner, it’s important to your bottom-line to make sure that you’re taking advantage of every tax deduction to which you are entitled. While most deductions are well known, there may be one deduction you have never considered. It has to do with your merchant account, more specifically, your credit and debit card processing fees
MERCHANT ACCOUNT FEES TAX DEDUCTION
Throughout the year, your merchant services provider has been charging you processing fees each time you process a credit or debit card payment. These processing fees can include the processor markup fee, per transaction fees, authorization fees, statement fees, PCI compliance fees, and potentially multiple other recurring monthly fees.
Your business can deduct the full cost of these merchant services fees on Schedule C. These deductions do not directly affect your company’s total tax liability. Instead, this tax deduction is subtracted from your gross earnings, which allows you to pay taxes on less of your business’s income.
ACCURATE RECORD KEEPING IS IMPORTANT
Your business must make it a top priority to keep detailed and accurate records so that you can refer back to them to deduct the maximum amount of fees. According to the IRS, you are responsible for keeping accurate merchant account fee records if you want to claim the deduction.
Your merchant services provider will send you a Form 1099-K, Payment Card and Third Party Network Transactions, that lists the total gross amount of credit card transactions. They will also provide this same information to the IRS. If your business offers more than one service, the credit card processor may classify your company’s earnings under more than one merchant category code. In this case, your business may receive one Form 1099-K for each applicable merchant category code.
FILLING OUT THE FORM 1099-K
When you receive the Form 1099-K from your merchant services provider, you will need to verify that the numbers listed on it match your independent records of gross income. The form will list any federal and state tax withholding’s, but it will not list the processing fees you paid to your credit card processor. Your company will have to use its own record of the fees to file for a tax deduction.
Sometimes, the gross income on your Form 1099-K can be deceiving. If you allow your customers to use debit cards to receive cash back, this money will be reported as gross income on your Form 1099-K. You do not have to report this money as income, but your company must keep records identifying this money as cash back to a customer. Depending on when you receive your Form 1099-K, your gross income may count transactions that later became chargebacks and refunds.
REACH OUT FOR HELP
One of the last things you want is a time-consuming and stressful audit. By being as organized as possible in your bookkeeping, you can minimize the likelihood of this happening. In addition, there is no shame in hiring a financial consultant to assist you in getting all of the tax deductions to which you are entitled.
Keeping financial matters in order is just as important as hiring competent staff and providing first-class customer service and products. Maximize your chances of a smooth and uncomplicated tax season by keeping organized and accurate records and hire outside help if necessary. Before you know it, you will be back to doing what you do best: growing your business.
If you are in the market for a new credit card processing service, or if you’re looking to substantially reduce your credit card processing fees, we can help you!
Visit us online at www.TailoredTransactions.com or call us direct at (888) 669.1686