Are Affirm (or similar loan) Processing Fees Tax Deductible for Business?

These processing fees from Affirm should be fully deductible as ordinary business expenses, just like your PayPal or Stripe fees. They fall under "merchant fees" or "payment processing expenses" on your Schedule C (if you're a sole proprietor) or as a business expense on other business returns. There's no special category needed - they're considered a normal cost of doing business. Make sure you're keeping good records of all these fees, ideally separated by payment processor type so you can track which services are costing you more in the long run. The $340,000 annual revenue doesn't change anything about the deductibility of these expenses. Just make sure you're properly tracking when the expense actually occurs (when the transaction happens, not when you might receive the full payment from Affirm).

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Quick tip from someone who's been in e-commerce for years - make sure you separate out Affirm's processing fees from any promotional costs they might charge. The regular processing fees are definitely deductible as ordinary business expenses. But sometimes they offer promotional financing (like "0% for 6 months") where you as the merchant pay an additional fee. Those promotional costs are technically still deductible, but my accountant has me track them separately as marketing/promotional expenses rather than payment processing fees.

Question for anyone who's dealt with this - does how you categorize these fees change if you're passing some of the costs to customers? We charge a small "financing fee" for customers who choose Affirm or Klarna.

For a business your size ($340K revenue), these Affirm processing fees are definitely fully deductible as ordinary business expenses under Section 162 of the tax code. I've been handling similar situations for small e-commerce businesses for years. The key thing to remember is that these fees should be deducted in the tax year when the transaction occurs, not when you receive the funds from Affirm (which can sometimes take a few days). This is called the "accrual method" and applies even if you're normally a cash-basis taxpayer. I'd suggest setting up a separate line item in your books specifically for "Affirm Processing Fees" - this helps with tracking your actual costs per payment method and makes tax preparation much cleaner. Your CPA will appreciate the organization when they return from vacation! One more tip: if you're offering any promotional financing through Affirm (like 0% interest periods where you pay extra fees), those should technically be categorized as marketing/promotional expenses rather than processing fees, though both are fully deductible.