Taxes

Are Credit Card Fees Tax Deductible for Therapists?

Headshot of Bryce Warnes
January 16, 2024
January 16, 2024
Bryce Warnes
Content Writer
Book a free consult

When your therapy practice accepts credit card payments, your clients may have an easier time paying for their sessions. That improves your cash flow and ensures you can keep providing clients with regular treatment, but it comes at a cost.

Banks, payment processors, and credit card companies charge you for the privilege of accepting credit card payments, and those fees can add up. Good news, though: Most—if not all—of those fees are tax deductible.

Here’s how to deduct credit card processing fees on your tax return and reduce your therapy practice’s tax burden.

{{resource}}

Are credit card payment processing fees tax deductible?

So long as you accept credit cards, debit cards, digital wallets, and most other forms of electronic payment, you should be prepared to pay processing fees.

Processing fees break down into three categories:

  • Interchange fees are charged by the banks issuing credit and debit cards, and set by card networks. They’re non-negotiable, and typically make up the majority of the fees you pay every time you accept a card payment.

  • Assessment fees are charged by card networks. Like interchange fees, they’re typically non-negotiable, but they make up the smaller portion of the total fees you must pay.

  • Processor markup is charged by the payment processor, typically the company that has provided you with a card terminal for accepting payments. Often, this fee is negotiable, and it can vary considerably between different processors.

You can also expect to pay additional fees for chargeback processing, PCI compliance and other operations. The amount of these fees varies according to the card processor and the operation in question. 

Are Stripe fees tax deductible for therapists?

The fees you pay to accept Stripe payments are, like other credit card processing fees, tax deductible. They’re reported on the same part of your tax return as other processing fees. (More on that shortly.)

Are Square fees tax deductible for therapists?

If you accept payments via Square, you can deduct the associated fees. You do so on the same part of your tax return where you deduct credit card processing fees. (More on that below.)

How to deduct credit card processing fees on your tax return

The provider or service you use to accept credit card, debit, and other electronic payments is required to send you a Form 1099-K by January 31st, after the close of the tax year.

Form 1099-K reports all the fees you were charged by the payment processor the prior year. You can use this information to report the fees as deductible expenses on your tax return.

Where to deduct credit card processing fees on your tax return

If your therapy practice is a sole proprietorship or an LLC filing as a sole proprietorship, you report credit card processing fees as a deductible expense on Schedule C of Form 1040.

There’s no specific line or fill-in box for credit card fees. You typically list the total amount you paid over the course of the year in the miscellaneous section (Part V, Other Expenses), labeling the item “Credit card processing fees.”

If your therapy practice is an S corporation, you list your deductible expenses on Form 1120S. Since there is no specific line for credit card processing fees, and no “miscellaneous” section as on Schedule C, you must list your total credit card fees for the year on an attached statement.

{{resource}}

Bonus deduction: Fees charged for using your business credit card

If you have a business credit card you use exclusively for business-related transactions, you can also deduct any fees associated with the card. That includes annual fees, balance transfer fees, foreign transaction fees, and any convenience fees you’re charged in the course of using the card.

You deduct these fees in Part V of Schedule C (sole proprietorships only) or on an additional form attached to Form 1120S (sole proprietorships.)

Best practices for deducting credit card fees

Whether you’re deducting occasional fees you pay your business credit card provider, or deducting payment fees incurred when you accept credit cards from clients, here are a few guidelines to follow:

  • Maintain accurate, organized records. Even if you expect to receive a Form 1099-K listing all fees paid over the course of the year, hang on to copies—ideally digital ones—of all your transaction receipts. This not only serves as a valuable backup measure in case Form 1099-K gets lost in the mail, but it can help you track credit card fees as an expense in your business books.

  • Keep business and personal expenses separate. This mainly applies if you’re planning to deduct usage fees for your business credit card. Any personal expenses you charge to your business card run the risk of invalidating your deductible claims. Personal credit card fees are not tax deductible, and if you start using your business credit card like a personal credit card and claiming the fees on your tax return, you could run into trouble with the IRS.

  • Keep up to date with changes to tax laws. Paying taxes is an inevitable part of life, but that doesn’t mean taxes are static. The eligibility of some deductions, and the way certain tax deductions are recorded and reported, may change from one year to the next. Keep track by staying up to day with IRS news.

  • Get help from a tax professional. It’s always wise to get advice from a CPA, tax attorney, or other professional before claiming a new expense on your tax return. A tax professional can also help you plan future tax moves and stay up to date with changes to the law.

First time claiming tax deductions? Check out our complete guide to tax deductions for therapists.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.

Bryce Warnes is a West Coast writer specializing in small business finances.

{{cta}}

Subscribe to our newsletter
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Download Free Tax Deduction Cheatsheet for Therapists
Download now →

You might like

What Therapists Need to Know About Tax Extensions

What Therapists Need to Know About Beneficial Ownership Information (BOI) Reporting

The Complete Guide to Tax Credits for Therapists

Heard

is

an

all-in-one

financial

solution

for

therapists

that

combines

software

and

human

support

to

handle

bookkeeping,

taxes,

payroll,

and

more.

Get our Tax Deduction Cheatsheet for Therapists

Use this cheatsheet to maximize your deductions and save money on taxes for your therapy practice.

X