COMMISSIONS & FEES

Credit Card and Transaction Fees

Credit Card processing fees, otherwise known as merchant fees are a regular cost of doing business for entrepreneurs across industries. Whether you use Square, Stripe, your local bank or invoicing software, you will likely be subject to some type of transaction fee for payments you collect via credit card. While nobody likes having a couple % of their income skimmed of the top, these fees are a cost of doing business and therefore deductible on your Schedule C, Schedule E or other relevant business return.

UBER DRIVER / RIDESHARE

Max is a taxi driver who accepts payment via credit card from his non-uber passengers. Max swiped a customer's card for $10.00 and Square deposited 9.72 into his bank account. When Max prepares his tax return he can either "gross up" his revenue to $10.00 and deduct $0.28 on line 10 of his Schedule C, or he can simply report $9.72 of gross income. Regardless of which method he chooses, the credit card fee charged by Square will be deductible.

COURIER

Fan is a full time driver for postmates. Her first delivery was to bring caviar and champagne to wealthy business man who lived next door to a boutique grocery store but could not be inconvenienced to make the trip himself. The delivery value was $200. Since Postmates handles all payment processing Fan would not be eligible to deduct any credit card fees that may have been charged as part of the order.

TASKER

Angela cleans houses via Taskrabbit on the weekends to help supplement her income. Last weekend, Angela charged an $80 cleaning fee to a customer and Taskrabbit deposited $64 into her account. Since the deposit into her account was already net of the 20% fee charged by Taskrabbit, her income has already been reduced and she would not be allowed to deduct the $16 fee on line 10 of her Schedule C.

PROFESSIONAL SERVICES

Charlotte is a freelance management consultant who accepts credit card payments upon request from her clients. Charlotte recently collected a $10,000 invoice via her banks credit card processing service. The bank deposited the full $10,000 into her account but later withdrew a $300 fee for processing the transaction. When Charlotte prepares her Schedule C at the end of the year, she would include the full $10,000 as part of her gross income and the $300 fee on line 10 of her Schedule C.

LANDLORD

Allan has three investment properties he rents out to tenants on a long-term basis. Allan collects rent via credit card since he can automatically process the payment at the beginning of each month. Alan's bank deposits collections for the full amount and later withdraws any applicable fees from his account. Last year, he paid $700 in merchant fees for each of his three rental properties. When Alan prepares his tax return he would deduct the $700 of fees he paid for each unit on line 19 in columns A, B and C of his Schedule E.

CREDIT CARD TRANSACTION FEE DEDUCTION INFORMATION

You can record sales made via credit card gross or net of fees, however, you should consistently apply what ever method you choose.
If your gross income is recorded net of credit card fees you will not be allowed to deduct the fee again as a business expense.
If you are a rideshare driver, host, tasker or delivery driver, it is likely that credit card fees may not be relevant to you since the service provider (Uber, Airbnb, etc.) you are working with will be settling payments for you. If they withhold a fee from amounts due to you, it will be easiest for you to report your gross revenue net of their fees. Note that the fee expense is still being deducted, but it is offsetting your gross income rather than reducing your income as an expense line item.
If you are paying for a service and there is a transaction fee it will only be a deductible expense for the seller. An exception to this rule would be a scenario where your bank charges you a transaction fee to send payment to a vendor (i.e. you wire your accountant $1,500 and your bank later deducts $15 from your account for processing the transaction).
You should check with your credit card processing provider to find out if you are allowed to charge your customers a surcharge to cover fees. If you do charge an additional fee for customers who pay you using a credit card, this fee revenue should be included as part of your gross sales.