Yes, you can deduct certain bank fees from your taxes – but only in specific situations. The key is that the fees must be tied to a business or income-producing activity. If they’re from a personal bank account, they generally aren’t deductible. Many taxpayers overlook this, missing out on savings.
According to a 2022 National Small Business Association (NSBA) survey, about 1 in 3 small business owners believes they’re overpaying on taxes due to missed deductions. Bank fees are a prime example: they might seem minor, but those monthly charges and ATM fees can add up over a year. Knowing the rules can help you keep more of your money.
What you’ll learn in this guide:
- 📊 Which bank fees are tax-deductible (and which ones aren’t)
- 💼 How business owners, freelancers, and 1099 filers can write off banking costs
- ⚖️ IRS rules, key terms, and laws you need to know (federal vs state)
- 💡 Real examples and tips to maximize deductions and avoid pitfalls
- ❌ Common mistakes to avoid when claiming bank fees on your taxes
Which Bank Fees Are Tax Deductible?
Only business-related bank fees are tax-deductible. In other words, if the fee is an ordinary and necessary cost of running your business or earning income, the IRS lets you deduct it. Personal bank fees are not deductible, because personal expenses don’t get tax write-offs.
Common deductible bank fees include: monthly service fees on business checking accounts, wire transfer charges for client payments, overdraft fees on a business account, and even credit card processing fees if you accept customer payments. Essentially, if your business had to pay it to a bank or financial institution in the course of operations, it’s likely deductible.
On the flip side, non-deductible fees would be anything from your personal accounts. For example, a monthly fee on your personal checking, an ATM fee from withdrawing cash for personal use, or fees on a personal savings account are not tax-deductible. The IRS draws a hard line between personal and business finances.
To make this clearer, let’s look at three common scenarios:
| Scenario | Deductible on Taxes? |
|---|---|
| Business Checking Account (used for a trade or business) | Yes. Fees like monthly maintenance, wire transfers, and overdraft charges on a business account can be deducted as business expenses. |
| Personal Bank Account (no business use) | No. Personal banking fees cannot be deducted. They are considered personal expenses, which are not tax-deductible under federal law. |
| Investment/Brokerage Account (personal investments) | Generally No. Investment account fees (e.g. brokerage or advisor fees) were deductible before 2018, but current tax law has suspended these deductions for personal filers through 2025. (If the investments are part of a business, that would be a different story.) |
In summary, you can deduct bank fees if they are part of your business costs or income-producing activities. You cannot deduct fees from purely personal accounts.
IRS Rules and Key Terms You Should Know
The IRS has clear guidelines for what counts as a deductible expense. Here are the key terms and rules:
- Ordinary and Necessary: The expense must be ordinary (common and accepted in your trade) and necessary (helpful and appropriate for your business). Bank fees for a business meet this test because most businesses need a bank account and incur banking charges.
- Trade or Business Expense: The fee must be incurred in carrying on a trade or business (or for the production of income, such as part of a business investment activity). This comes from IRS Code Section 162, the legal foundation allowing business expense deductions. In plain terms, if you’re self-employed, a freelancer, or running a company, your banking fees for that activity count as business expenses.
- Personal vs. Business: The IRS explicitly says personal expenses are not deductible. If you run a sole proprietorship or side gig, it’s wise to have a separate business bank account. That way, all fees on that account are clearly business-related. Fees on a personal account, even if you sometimes use it for gig work, are risky to deduct (and likely disallowed) because the account isn’t dedicated to the business.
- Schedule C: This is the tax form where sole proprietors and 1099 freelancers report their business income and expenses. Bank fees paid for your business would typically be listed here (often under “Other Expenses” as something like “Bank service charges”). For example, if you paid $200 in bank fees for your freelance design business, you’d include that $200 as an expense on Schedule C, reducing your taxable profit from the business.
- Corporations and LLCs: If your business is structured as a corporation or partnership (including S-corps, C-corps, LLCs taxed as such), you also deduct bank fees as a business expense on the business tax return (Form 1120, 1120S, or 1065). The concept is the same: any ordinary cost of doing business, including bank charges, reduces your business’s taxable income. For instance, a corporation’s checking account fees are fully deductible on its corporate return.
- 1099 Filers: This term refers to self-employed individuals who receive 1099 forms (like 1099-NEC or 1099-K) instead of W-2s. If you’re an independent contractor or gig worker, you’re essentially a sole proprietor in the IRS’s eyes. You can deduct bank fees related to your self-employed income just like any other business expense (again, using Schedule C). Just make sure those fees come from an account you use for your 1099 business activity.
- Schedule A (Itemized Deductions): In the past, some personal financial fees (like investment account management fees or even a safe deposit box fee related to investments) were deductible if you itemized. However, from 2018 through 2025, those miscellaneous itemized deductions are suspended for federal taxes. This means you generally cannot deduct things like investment advisory fees or bank fees on personal accounts during this period. (This may change after 2025 if the law sunsets, but as of now, plan on no deduction for personal investment fees.)
Key point: Always ensure the fee is directly tied to a business account or purpose. The IRS may ask to see proof, so documentation is crucial (more on that below).
Why Deducting Bank Fees Matters
You might be thinking, “Bank fees are small — why bother deducting them?” But consider this: every deduction counts. Bank fees can easily total hundreds of dollars a year for a small business when you add up monthly maintenance charges, ATM fees during business travel, wire fees for client payments, and more. Deducting those costs means you don’t pay income tax on that portion of your earnings.
For example, if your business has $300 in various bank fees this year and you’re in the 24% tax bracket, deducting those fees could save you about $72 in taxes. That’s money back in your pocket rather than paid to the IRS. Over several years, or as your business grows, these savings add up. Plus, identifying all deductible expenses (even minor ones) is simply good financial practice for your business.
Another reason it matters: separating business and personal finances. When you make a conscious effort to only deduct fees from business accounts, it encourages you to keep those accounts truly for business use. This separation not only helps you at tax time, but it also gives your enterprise more credibility (important if you’re ever audited or if you seek a business loan). It shows you’re treating your business finances professionally, which can benefit you in the long run.
Real Examples of Bank Fee Deductions
Let’s look at a few concrete examples to illustrate how deducting bank fees works in practice:
Example 1 – Solo Freelancer: Jane is a freelance graphic designer. She uses a separate business checking account for client payments and expenses, which has a $15 monthly fee; Jane also paid $30 in wire fees for two international clients. At tax time, she deducts the total $210 of bank fees on her Schedule C, reducing her taxable business income. Result: Jane ends up saving money on those fees through lower taxes.
Example 2 – Small Business (LLC or S-Corp): XYZ Consulting, an LLC taxed as an S-corporation, has a business bank account. In 2025, it paid $25/month in account fees ($300 total for the year) plus $50 in ATM fees when the owner withdrew cash to pay a vendor at a conference. XYZ deducts the $350 in bank fees on its tax return, reducing its taxable income. Key insight: Even ATM charges for business count as deductible (in this case, the fee was for getting cash to pay a vendor).
Example 3 – Personal Account (Not Deductible): John has a personal checking account that charges a $10 monthly fee, and he occasionally uses it for some side gig income; however, because it’s not a dedicated business account, those fees are not deductible. If John wants to start deducting banking costs for his side hustle, he should open a separate account just for that business. Lesson: Mixing personal and business funds complicates your records and can cause you to miss out on deductions.
Example 4 – Investor Scenario: Maria has a personal brokerage account and paid $200 in management fees to her investment advisor in 2024. Under current tax law (through 2025), she cannot deduct those fees, so there’s no tax break on that $200. If Maria were managing investments as part of a business, then fees in that business context could be deductible. Takeaway: Personal investment fees aren’t deductible at the moment, but this may change after 2025.
These examples show that context matters. Deductibility hinges on whose money and whose purpose is being served by the fee: your business or personal life.
Pros and Cons of Writing Off Bank Fees
Is claiming those bank fees really worth it? Here’s a quick look at the benefits and considerations of deducting bank fees:
| Pros of Deducting Bank Fees | Cons to Be Aware Of |
|---|---|
| Lowers your taxable income (you pay tax on less profit). | Not allowed for personal accounts – only business use qualifies. |
| Recovers some of the money spent on annoying fees (tax savings can offset part of the cost). | Requires good record-keeping and separate accounts to substantiate the deductions. |
| Encourages better financial organization by separating business and personal finances. | Potential tax savings are modest if fees are small (you only save a percentage of the fee in tax). |
| Every legitimate deduction adds up over time, boosting overall tax efficiency. | If misused (deducting personal fees improperly), it can trigger penalties or audit risk. |
For most business owners, the pros outweigh the cons: it’s generally worthwhile to claim every deduction you’re entitled to. Just be sure to do it accurately and keep documentation.
Federal vs. State Tax Differences
Federal law sets the baseline: as explained above, the IRS allows deductions for business-related bank fees and disallows deductions for personal banking fees or investment fees for individuals (at least until 2026). All the examples and rules we’ve discussed so far are based on federal tax law, which applies nationwide.
However, state tax laws can vary. Many states follow the federal rules for defining taxable income and deductions, especially if the state tax return starts with your federal income. If your state income tax is based on your federal taxable income, then deducting those bank fees on your federal return will automatically reduce your state taxable income as well.
That said, some states have their own twists:
- State-specific deductions: A few states still allow certain itemized deductions that the federal government currently disallows. For instance, states like California or New York may let you deduct some investment-related fees or unreimbursed expenses on your state return even though you can’t on the federal return. This means in Maria’s example above, she might not get a federal deduction for her $200 investment fee, but her state tax laws could potentially give a deduction for it on the state return. (Each state is different, so check your state’s tax guidelines or consult a tax professional.)
- No state income tax: States without income tax (e.g. Texas, Florida, Nevada) don’t tax personal income at all. If you’re in one of these states, you won’t have a state return to worry about, and the deductibility of bank fees is only a federal issue for you.
- Business expense alignment: In general, states align with federal rules on what counts as a business expense. A personal bank fee won’t become deductible just because of your state – the personal vs. business distinction still applies everywhere. The differences are usually in itemized deductions or credits, not in re-classifying personal costs as business costs.
Bottom line: Nail it down correctly on your federal return first. Then, if you live in a state with income tax, see if your state offers any additional deductions or has different rules. Many taxpayers simply follow federal treatment, but it’s worth a quick check so you don’t miss a state-specific break.
Avoid These Common Mistakes
When deducting bank fees on your taxes, steer clear of these frequent mistakes:
- Mixing Personal and Business Funds: This is the #1 error. Don’t pay business expenses from a personal account (or vice versa). If you do, those bank fees become murky. Only deduct fees from a dedicated business account. (If you accidentally used a personal account for a business expense, consider moving to a separate account as soon as possible to avoid issues.)
- Trying to Deduct Personal Fees: Some people attempt to write off charges on a personal account because they had a business transaction there. The IRS is clear: personal banking fees are not deductible. Avoid trying to sneak these in; it can backfire in an audit.
- Neglecting Small Fees: Fifty cents here, $3 there – it might not grab your attention, but small fees like ATM surcharges or monthly service charges add up over time. Track every fee related to your business throughout the year. Overlooking these means you’re giving away money. Use bank statements or accounting software to catch them all.
- Inadequate Documentation: If you ever face an IRS audit, you’ll need to prove those fees were business-related. Don’t just claim a lump sum of “bank charges” without backup. Keep bank statements, receipts, or fee schedules from your bank. Jot down notes if a fee was for a specific purpose (e.g., “Wire fee to send payment to supplier on 3/5/2025”). Good records ensure your deduction won’t be disallowed for lack of proof.
- Not Reconciling Accounts: Make sure your bookkeeping actually captures all those fees. If you’re tracking expenses manually or even with software, reconcile your accounts monthly. It’s a mistake to assume the bank automatically handles it – you need to actively record those fees in your books. This way, you won’t forget to deduct any or accidentally deduct something twice.
By avoiding these pitfalls, you can safely maximize your tax benefits without raising red flags. When in doubt, consult a tax professional or accountant to review your approach.
FAQs: Deducting Bank Fees on Taxes
Q: Yes or No: Can I deduct the monthly fee from my personal checking account?
A: No. Fees on personal bank accounts are considered personal expenses and are not tax-deductible. Only fees tied to business accounts or income-producing activities can be written off.
Q: Yes or No: I’m self-employed – can I deduct my bank’s service charges?
A: Yes. If you’re self-employed (a freelancer or 1099 worker) and you have a bank account for your business, the service charges on that account are deductible business expenses.
Q: Yes or No: Do I need a business bank account to deduct fees?
A: Yes. It’s strongly recommended. While what matters is the purpose of the account (business vs. personal), having a dedicated business bank account makes it clear and helps ensure your fees qualify as deductions.
Q: Yes or No: Are ATM fees deductible during business travel?
A: Yes. If you incur ATM fees while obtaining cash for a business purpose (for example, paying a vendor in cash on a work trip), those fees count as deductible business expenses.
Q: Yes or No: Can I write off credit card annual fees or interest as bank fees?
A: Yes. Annual fees or interest on a business credit card are deductible. No for personal cards – personal credit card interest isn’t tax-deductible.
Q: Yes or No: Do bank fees for a rental property account count as deductions?
A: Yes. If you have a separate account for your rental property or manage rentals as a business, those bank fees can be deducted on Schedule E as part of your rental expenses.
Q: Yes or No: Will deducting bank fees raise a red flag with the IRS?
A: No. Claiming legitimate bank fees for a business is common and expected. It won’t trigger an audit by itself. Just ensure you only deduct valid business-related fees and keep proper records as support.