Bank fees are deductible only if you use your checking account for business
You cannot deduct checking account fees on your personal tax return. The IRS treats personal banking costs the same way it treats groceries or gas for your car — as a personal expense, not a tax-deductible one.
If you use a checking account for business purposes, however, the fees tied to that account may be deductible. The key is that the account must be used primarily for business transactions, and the fee must be directly tied to running that business.
This distinction matters because many people have one account for personal spending and another for a side business or freelance work. The IRS looks at how you use each account, not just what you call it.
Key Takeaways
- Personal checking account fees are never deductible, even if you pay them to a bank you also use for business.
- Business checking account fees are deductible if the account is used for business income and expenses.
- You deduct business bank fees on Schedule C (for sole proprietors) or on your business tax return, not on your personal return.
- Mixed-use accounts — where you deposit both personal and business money — create gray areas; keep records showing what portion relates to business.
- Monthly maintenance fees, overdraft fees, and wire transfer fees on a business account are all potentially deductible.
What counts as a business checking account fee
A business checking account fee is any charge the bank levies on an account you use to conduct business. This includes monthly maintenance fees, per-check charges, wire transfer fees, overdraft fees, and fees for stopping payment on a check.
The account itself must be set up as a business account — either in your business name or clearly designated for business use. A personal account with a business name written on the checks does not count. Banks typically require you to register as a business (sole proprietor, LLC, S-corp, or C-corp) to open a true business account.
If you are a sole proprietor running a business under your own name, you can still open a business checking account. You will need an Employer Identification Number (EIN) from the IRS, even if you have no employees. You can obtain an EIN for free through the IRS website.
How to report business bank fees on your tax return
If you are a sole proprietor, you report business bank fees on Schedule C (Form 1040), which is where you list all business income and expenses. The fees go in the "Office Expense" or "Miscellaneous" section, depending on your tax software or form version.
If your business is structured as an LLC, S-corp, or C-corp, the bank fees appear on your business tax return (Form 1120-S for S-corps, Form 1120 for C-corps, or Form 1065 for partnerships). You do not deduct them on your personal return at all.
Keep your bank statements as proof. The IRS does not require you to attach receipts to your return, but you must keep them for at least three years in case of an audit. Your bank statement clearly shows the date, amount, and description of each fee.
When a mixed-use account creates a problem
Some people deposit both personal income and business income into the same checking account. This is not ideal for tax purposes, but it happens. If you do this, you cannot deduct the entire account's fees — only the portion that relates to business.
For example, if your account charges a $15 monthly maintenance fee and you use the account 60 percent for business and 40 percent for personal, you could deduct $9 of that fee (60 percent of $15). You would need to document this split clearly, either through a spreadsheet or by noting it in your records.
The better approach is to open a separate business checking account. It costs nothing extra and makes your tax records much cleaner. It also makes an audit easier to defend because there is no guesswork about what portion of fees relates to business.
Fees that do not count as deductible business expenses
Not every charge from your bank is deductible, even on a business account. Interest you pay on a business loan or line of credit is deductible, but it goes in a different category (Interest Expense) than bank fees.
Penalties for late payment of taxes or other government obligations are not deductible. If your bank charges you a fee because a tax payment bounced, that fee itself is not deductible, though the underlying tax liability remains.
Fees for personal services — such as notary services, safe deposit boxes, or financial advice — are generally not deductible as business expenses unless they are directly tied to running your business. A safe deposit box used to store business documents might be deductible; one used to store personal valuables is not.
State and local tax deductions for bank fees
Some states allow you to deduct business bank fees on your state income tax return even if you deduct them federally. Others do not. State rules vary widely, so check your state's tax guidance or speak with a tax preparer who knows your state's rules.
If you live in a state with no income tax, this is not a concern. If you live in a state that taxes business income, the deduction usually follows federal rules — if it is deductible on your federal return, it is deductible on your state return.
Frequently Asked Questions
Can I deduct ATM fees or overdraft fees?
ATM fees charged by your own bank are not deductible. Overdraft fees on a business account are deductible as a business expense. Keep your bank statement showing the fee and the date it occurred.
What if I have a business account but rarely use it?
You can still deduct the fees. The IRS does not require the account to be heavily used, only that it be designated for business. However, if you rarely deposit business income into it, the IRS might question whether it is truly a business account during an audit.
Do I need receipts for bank fees, or is my bank statement enough?
Your bank statement is sufficient proof. The IRS does not require you to attach receipts to your return. Keep statements for at least three years. If audited, the statement shows the fee, date, and amount clearly.
Can I deduct fees from a personal account if I use it partly for business?
Not easily. The IRS expects business accounts to be separate. If you use a personal account for both personal and business, you would need to calculate and document the business portion of fees, which is difficult to defend in an audit.
What if my business is a hobby or side gig — can I still deduct bank fees?
Only if the IRS considers it a legitimate business, not a hobby. The IRS looks at whether you operate it to make a profit, keep records, and report income. If you meet those tests, bank fees are deductible even for a part-time business.