Bank charges are deductible only if you use the account for business, and only the portion tied to business activity

If you have a personal checking account, bank fees are not deductible. If you have a business account or use a personal account partly for business, you can deduct fees that relate directly to earning income — but only on your business tax return, and only if you itemize deductions or run a sole proprietorship, partnership, or S-corp that reports them on Schedule C.

The IRS treats bank charges the same way it treats other business expenses: they must be ordinary (common in your industry), necessary (helpful to running the business), and directly connected to generating income. A monthly maintenance fee on a business checking account qualifies. A personal account fee does not, even if you occasionally deposit a freelance check into it.

The catch is that many people cannot deduct business expenses at all anymore. If you take the standard deduction instead of itemizing, you cannot deduct bank fees. If you are an employee (not self-employed), you cannot deduct them either. Only business owners who file Schedule C, Schedule F, or a business tax form can claim them.

Key Takeaways

  • Bank fees on personal accounts are never deductible, even if you use the account for some business activity.
  • Fees on a dedicated business checking account are deductible if you itemize deductions or file a business tax return (Schedule C, Schedule F, or corporate return).
  • If you use one account for both personal and business, you can only deduct the portion of fees that relates to business transactions, which is difficult to prove.
  • Overdraft fees, late fees, and returned-check fees are deductible under the same rules as monthly maintenance fees — only if the account is used for business.
  • Most employees cannot deduct bank fees at all, even on a business account, because employee business expenses were suspended in 2017.

When a business checking account fee is deductible

A business checking account is the clearest case. If you own a sole proprietorship, partnership, LLC, S-corp, or C-corp and maintain a separate account for business, the monthly maintenance fee, per-transaction fees, and wire transfer fees are all deductible business expenses. You report them on Schedule C (for sole proprietors and single-member LLCs), Schedule F (for farms), or on your corporate return.

The fee must be for the account itself or for services directly tied to business banking — not for personal services like overdraft protection on a linked savings account or a safe deposit box used for personal documents. If your bank bundles business and personal services into one fee, you can only deduct the portion attributable to business.

Keep your receipts and bank statements showing the fee. The IRS does not require you to file anything special, but if you are audited, you need to show that the account was used for business and that the fee was charged.

Personal accounts and mixed-use accounts

A fee on a personal checking account is never deductible, period. This is true even if you deposit a 1099 payment into it or use it to pay business expenses. The account itself is personal property, and the bank is charging you for the right to hold and manage your personal money.

If you use one account for both personal and business, the IRS expects you to separate the expenses. In practice, this is nearly impossible to prove. You would need to show what percentage of your transactions were business-related, apply that percentage to the monthly fee, and deduct only that portion. Most people cannot do this accurately, and the IRS knows it. The safer approach is to open a separate business account and keep personal and business money apart.

If you do attempt to deduct a portion of a mixed-use account fee, document your reasoning clearly. Write down the number of business transactions versus personal transactions each month, calculate the ratio, and apply it to the fee. If you are audited, you will need to defend this calculation with your bank statements.

Types of bank charges that may be deductible

Monthly maintenance fees are the most common deductible charge. But the rule applies to other fees as well:

  • Per-transaction fees — charged each time you make a deposit, withdrawal, or transfer — are deductible if the account is used for business.
  • Wire transfer fees — charged when you send money to another bank — are deductible if the wire is for business purposes.
  • Overdraft fees — charged when your account goes negative — are deductible only if the overdraft occurred because of a business transaction (for example, a large payroll withdrawal).
  • Returned-check fees — charged when a check bounces — are deductible if the check was written for business.
  • Account closure fees — charged when you close an account — are deductible if the account was used for business.
  • Minimum balance fees — charged when your balance falls below a threshold — are deductible if the account is a business account.

Fees for personal services — such as notarization, safe deposit boxes, or credit card annual fees — are generally not deductible, even on a business account, unless they are directly tied to earning income. A safe deposit box used to store business contracts or inventory might may have access to; one used to store jewelry or family documents does not.

Who can actually deduct bank fees

The ability to deduct bank fees depends on your tax situation, not just on whether you have a business account.

Self-employed people and business owners — sole proprietors, partners, LLC members, and S-corp shareholders — can deduct business bank fees on Schedule C or the appropriate business form. You do not need to itemize deductions; the fee is deducted from your business income before calculating self-employment tax.

Employees cannot deduct bank fees, even if they maintain a business account or use personal funds to pay business expenses. The Tax Cuts and Jobs Act of 2017 suspended the deduction for employee business expenses. This applies to W-2 employees, even if they are required to buy their own supplies or equipment.

People who itemize deductions — those who do not take the standard deduction — might have been able to deduct bank fees as miscellaneous itemized deductions before 2017. That deduction is no longer available. The standard deduction is now so high that most people do not itemize anyway.

If you are unsure whether you can deduct bank fees, check your tax form. If you file Schedule C, you can deduct them. If you file only a 1040 with the standard deduction, you cannot.

How to report bank fees on your tax return

If you are a sole proprietor or single-member LLC, you report bank fees on Schedule C, Part II, under "Office expense" or "Other expenses." Write "Bank fees" on the line and enter the total amount you paid during the year.

If you are a partnership or multi-member LLC, the fees go on Form 1065, also under business expenses. If you are an S-corp or C-corp, they go on Form 1120-S or Form 1120.

Add up all the bank fees you paid during the year — monthly maintenance, wire transfers, overdraft fees, and any other business-related charges. Keep your bank statements as proof. You do not attach them to your return, but you must have them if the IRS asks.

Do not try to deduct fees on your personal 1040 unless you are self-employed and filing Schedule C. The IRS has automated systems that flag deductions in the wrong place, and you may trigger an audit.

What to do if you are unsure whether a fee qualifies

The test is simple: Did the fee arise because of a business transaction or business account? If yes, it is deductible (assuming you can deduct business expenses at all). If no, it is not.

Borderline cases include fees on accounts that are partly personal and partly business. If you cannot separate the business portion reliably, do not guess. Either open a separate business account or do not deduct the fee. The cost of a business checking account is usually small enough that the deduction is not worth the audit risk.

If you work with a tax preparer or accountant, show them your bank statements and ask which fees may have access to. They can help you calculate the business portion of a mixed-use account and document your reasoning in case of an audit.

Frequently Asked Questions

Can I deduct bank fees if I am an employee with a side business?

Only the fees on an account used for the side business are deductible. Fees on your personal paycheck account are not. If you use one account for both your job and your side business, you cannot reliably deduct any portion of the fee. Open a separate business account for the side business and deduct fees on that account only.

Are credit card fees deductible?

Credit card annual fees and processing fees are deductible if the card is used for business. Fees charged by the credit card company for late payments or over-limit charges are also deductible if they relate to business charges. Interest on a business credit card is deductible as interest expense, not as a fee.

What if my bank charges me a fee because I did not maintain a minimum balance?

A minimum balance fee is deductible if the account is a business account. The fee is charged by the bank as a condition of holding the account, so it is a business expense. Keep your statement showing the fee and the reason it was charged.

Can I deduct fees my bank charged by mistake?

If the bank charged you a fee in error and you got it refunded, you have nothing to deduct — the fee was reversed. If you did not get it refunded and you believe it was a mistake, contact the bank and ask for a reversal before tax time. If the bank refuses and the fee relates to business, you can deduct it, but document the error in case the IRS questions it.

Do I need to report bank fees separately or can I lump them with other expenses?

You can lump bank fees with other office expenses on Schedule C if the total is small. If bank fees are a significant expense (more than a few hundred dollars per year), list them separately so the IRS can see what you are deducting. Either way, keep your bank statements as backup.