Can I deduct overdraft fees that occured in a business account? If so, how?

[Melaine]

No.  You will not be able to deduct these, overdraft fees are not business expense.

[ikatan]

Thank you. To clarify, even though it was an expense of the business you cannot deduct it? Can you elaborate why this would be treated differently from other bank fees that are deductible?

[Melaine]

The way to look at it and all expenses is; was this fee or expense necessary for the business and its growth.  The reason it is different is that it was a cost that was not mandatory to run the business.  Meaning, you could have run the business without having that fee, while the other fees are a cost for doing business.  One is mandatory, one is 'optional'.

[ikatan]

Excellent explanation. Thank you very much.

[Melaine]

You are very welcome.

[VolvoGirl]

May I ask what the fees are from?  Did your own checks bounce or did someone else's check bounce that you deposited?

[ikatan]

Our own check bounced. There was a miss-timing of a check deposit and payment that resulted in insufficient funds for a check that was made to another organization.

[tcr_cpa]

Unfortunately the answer that bank fees / charges on a business account are non-deductible is incorrect. Bank charges / fees on a business bank account are deductible. Read IRS Publication 334 under "other expenses you can deduct". Pud 535 does not address bank fees.

[bjtek]

@tcr_cpa is correct, these overdraft fees ARE deductible. For anyone like me finding this thread in 2024. I'm a bit confused as to how the first commentor claims that they don't pass the "ordinary and necessary" test. If your business bank shuts down your account, it seems like it would be a bit of an issue. It's quite necessary, from my point of view. 

[taxlady28]

An IRS auditor may not agree with you on that.

[bjtek]

If you're able to cite where in the tax code you're drawing from to form this viewpoint I would be more than willing to listen! Especially given that 100% of the sources I found directly contradict this:

https://www.bench.co/blog/tax-tips/small-business-tax-deductions#:~:text=If%20your%20bank%20or%20cre...

"If your bank or credit card company charges annual or monthly service charges, transfer fees, or overdraft fees, these are deductible."

https://www.sofi.com/learn/content/are-overdraft-fees-tax-deductible/

"These people can only write off overdraft fees that occur during the normal course of business operations."

https://www.revenued.com/articles/business-banking/overdraft-fees-for-business-accounts/

"Overdraft fees generally fall under “banking fees,” which are usually reported as a separate line item under “Other Expenses.”"

https://falconexpenses.com/blog/bank-fees-tax-deduction/

"The answer to this question is, yes.

Yes, you can deduct the overdraft fee from your business taxes."

https://flyfin.tax/blog/can-you-deduct-bank-fees-as-an-independent-contractor

"However, this fee is tax deductible as  the overdraft was directly related to your business."

https://www.taxaudit.com/tax-audit-blog/can-i-deduct-bank-fees

"You may be surprised at the end of the year when you put together all the maintenance, check, ATM, foreign exchange, overdraft, returned check, late payment, and other fees related to your business accounts – sometimes, it can add up to a lot of clams!"

https://www.hurdlr.com/deductions/tax-deductible-bank-fees

"The fees your bank may charge including but not limited to wire transfer fees, check fees, overdraft fees, and service charges can add up. Since these costs are a normal part of doing business generally these fees will be deductible when you prepare your business tax return at the end of the year."

Again, I will reinforce to anyone who finds this thread in the future: overdraft fees on a business account are 100% deductible. Please be careful of who you are taking advice from on here.

[taxlady28]

Do not believe everything posted on the internet.  None of those links is to the IRS site. 

[Critter-3]

Bank fees are ordinary and necessary in the course of a business and are thus deductible ... see: 

IRS pub 334 ... https://www.irs.gov/forms-pubs/about-publication-334 ... page 38 ... bank fees 

[bjtek]

Thank you! And even though the page doesn’t specify overdraft, there is no indication from any IRS source that those would be excluded for some reason. In a business account, the only situation where this is even a little bit hairy is if the overdraft was a direct result of a personal expense that they used company funds for. Obviously that changes the situation.

@taxlady28you are giving a great example for why people should take your advice and not believe what you read on the internet!! Please make sure to do better research before giving tax advice on here. While I would tend to agree that the non-IRS sources like the websites I linked might not be 100% trustworthy on their own, when 8/8 of them are saying identical things you might consider starting to pay attention. I had to make an account specifically because of how surprised I was to see the advice OP got here (I will try to be more civil in the future, the pretentiousness got me in this case)