Yes, in a few situations we can deduct the fees from our returns. Tax law has changed over time – but for most people, the fees are not tax-deductible.
I think that is one of the most bizarre things we have seen on this site. But the thing is, there’s no law that says that the fees have to be tax-deductible. In fact a few years ago they were tax-deductible. But if you’re a member of a large bank, and you have a credit card, it’s not tax-deductible unless you’re paying a fee for services.
The most common situation is for the bank to charge a fee and deduct the cost from its income. The bank needs a return on its investment. If a customer pays a fee, and that fee is not deductible, then the bank has to pay its return (in this case, the cost of its investment). If a bank was not deducting the cost of a debit card transaction, the bank would be forced to write off the entire cost as a loss.
You might assume that any fee charged to a credit card would be taxable, but that actually isn’t true. Only the fees that are in effect are taxable. If a bank charges you $10 for a transaction, you are only taxed on the $10 and not on the $10’s cost. The banks profit by deducting the cost of the fees from their income.
I don’t know about you, but I’m a big fan of the idea that credit card companies charge you a fee for every transaction. Because debit cards are used less often, they often get a lower fee to use the card. Of course, the fee for using debit cards is not tax deductible, but the fee for using credit cards is. I think this is one of the most fair tax rules we’ve seen.
Credit card fees are also one of the major reasons why the IRS does not allow you to deduct interest on your credit card debt. They feel that the fee is tax deductible on the 10s, but not on the 10s+ cost. I have a friend who works for one of the credit card companies, and they have never seen a credit card where someone does not get a refund.
Sure, it’s nice to get a refund for a credit card, but I think it is worth pointing out that credit card interest is tax deductible. The good news is that if you are paying down your credit card balance for three years, you can take that deduction and use it to put your tax refund into a tax-deferred savings account.
You can take advantage of this deduction if you’re a married couple. The deduction is $3,000. Credit card interest is deductible up to $500 per year.
In the past, credit card holders had to pay penalty charges on their refund for not paying the full amount of their credit card bill. These charges were deducted from the credit card company’s share of the refund they paid. Now, they can take all or nothing.
For the past few years, both banks and credit cards have been offering a special deal where you can get your credit card bill refunded for a discounted amount by up to $500. This offer has been available since 2006.
