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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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ARE BANK NSF FEES TAX DEDUCTIBLE, EVEN IF EXCESSIVE(SAY ...

Resolved Question:

ARE BANK NSF FEES TAX DEDUCTIBLE, EVEN IF EXCESSIVE(SAY $18,000 A YEAR). ARE THERE ANY COURT CASES ALLOWING THIS DEDUCTION? THANKS.
Submitted: 9 years ago.
Category: Tax
Expert:  Ed Johnson replied 9 years ago.

Dear Taxman,

what are the bank fees for?

Customer: replied 9 years ago.
Reply to Ed Johnson's Post: THESE ARE JUST BANK NSF FEES CHARGED ON EACH CHECK THAT IS CREATES AN OVERDRAFT ACCT. THE TYPICAL $25 NSF FEE.
Expert:  Ed Johnson replied 9 years ago.

Dear TAxman,

These fees are not dedtucable on income taxes. They are non-deductable personal expenses.

There are two exceptions> If these nsf charges are on a business account that is associated with generating income as part of your small business, then they can be included on schedule C as part of the busienss expenses.

If they are for late mortgage payments, then they are considered mortgage interest.

Customer: replied 9 years ago.
Reply to Ed Johnson's Post: AN IRS AGENT IS DISALLOWING THE NSF CHARGES ON A CORPORATE RETURN--DO YOU KNOW OF ANY COURT CASES ALLOWING THE DEDUCTION?
Customer: replied 9 years ago.
AN IRS AGENT IS DISALLOWING THE NSF CHARGES ON A CORPORATE RETURN-DO YOU KNOW OF ANY COURT CASES
ALLOWING THE DEDUCTION?
Expert:  Ed Johnson replied 9 years ago.

DearCustomer

I looked for a tax ruling and court cases and came up with the ruling listed at the link. This is only recently posted to the public information. It represents new information for me, and I have to modifiy my original response based on that. I apologize.

The IRS Agent may be right, in this case. In prior years, (last year), the IRS had allowed some clients to take NSF deductions as interest, because their banks had expressed the NSF fees as an interest rate.

However, in a more recent ruling this year, regarding NSF for checks written on bank credit card accounts, (convenience checks), the IRS ruled that NSF fees were not interest for IRS tax reporting purposes.

This is a ruling from January 17, 2007, and was just recently posted in an update to the IRS website.

http://www.irs.gov/irb/2007-03_IRB/ar06.html

If the NSF are not counted as interest for tax purposes in general then it holds true that you would not be able to take them as a deduction.

If the NSF are not counted as interest for income, then it also holds true, that you would not be able to deduct the fees.

 

 

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