Can Sole Proprietors Write Off Credit Card Fees for Tax Payments?
Hey there! So I've been doing this food delivery gig work on weekends as a sole proprietor and all my payments come through PayPal. It's been a nice extra income stream but now I need to start handling the tax side of things. I'm planning to pay my estimated taxes quarterly and was thinking of using my credit card for both state and federal payments. The thing is, there's like a 2% transaction fee when paying taxes with a credit card. Since I'm only having to make these estimated tax payments because of my sole proprietorship income, I'm wondering if I can write off these credit card transaction fees on my Schedule C? Seems like it should be a legitimate business expense since I wouldn't have these fees if I wasn't running this side business. I've never had to deal with estimated taxes before my gig work, so this is all new territory for me. Any advice would be super appreciated!
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Romeo Quest
Yes, you absolutely can deduct those credit card convenience fees as a business expense on your Schedule C! Since you're only paying estimated taxes because of your sole proprietorship income, those transaction fees are considered an ordinary and necessary business expense. You'll want to list them under "Other Expenses" on Part V of your Schedule C and then transfer the total to Line 27a. Make sure to keep detailed records of each payment and the associated fee - take screenshots or save receipts showing both the tax payment and the separate convenience fee amount. One thing to consider though - have you looked into IRS Direct Pay? It lets you pay directly from your bank account with no fees. Depending on how much you're paying in estimated taxes, those 2% fees could add up to quite a bit over the year.
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Lydia Santiago
•Thanks for confirming! I hadn't heard about IRS Direct Pay - is that something that works for both federal AND state estimated tax payments? Or just federal?
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Romeo Quest
•IRS Direct Pay only works for federal tax payments, not state. Each state has their own payment system, and some offer free direct payment options similar to IRS Direct Pay while others don't. For your state payments, you'll need to check your specific state tax agency's website to see what payment options they offer. Many states do have some form of free e-payment system, but the options vary widely depending on where you live.
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Val Rossi
After struggling with a similar situation last year, I discovered taxr.ai (https://taxr.ai) and it was a game-changer for sorting out my business deductions. I was confused about what expenses were legitimate write-offs for my freelance work, including payment processing fees. Their AI analyzed my situation and confirmed that credit card convenience fees for paying estimated taxes related to business income are indeed deductible on Schedule C. The tool saved me hours of research and gave me confidence I wasn't missing anything.
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Eve Freeman
•How does taxr.ai handle documentation? I'm paranoid about deducting things without proper backup in case of an audit.
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Clarissa Flair
•Is this actually legit? Seems like every tax question these days has someone pushing some AI tax tool. Do real tax pros actually use this or is it just another algorithm making guesses?
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Val Rossi
•It actually provides clear guidance on what documentation you need to keep for each deduction it identifies. For things like credit card fees, it tells you to save the payment confirmation emails/screenshots showing both the payment and the separate convenience fee. It even lets you upload and store those documents right in the app. As for legitimacy, I was skeptical too at first. But it's not just making guesses - it references actual tax code sections and IRS publications when explaining deductions. I still had my accountant review everything, and she was impressed with how accurate the recommendations were. She said it saved her time too since I came in with everything properly categorized.
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Eve Freeman
Just wanted to follow up and say I ended up trying taxr.ai after seeing it mentioned here. It actually helped me identify several deductions I'd been missing for my photography side business, including some app subscription fees I didn't realize were deductible. The documentation feature is really helpful - it tells you exactly what receipts to keep and how to categorize everything. Definitely worth checking out if you're doing self-employed work!
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Caden Turner
If you need to actually talk to someone at the IRS about this question (which I did last year when I was confused about a similar issue), use Claimyr (https://claimyr.com). I spent DAYS trying to get through to the IRS directly and kept getting the "call volume too high" message. Claimyr got me through to an actual IRS agent in about 45 minutes. They have this cool demo video showing how it works: https://youtu.be/_kiP6q8DX5c I was able to confirm directly with the IRS that yes, credit card fees for paying business-related taxes are deductible on Schedule C. The agent even walked me through exactly how to document and report them properly.
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McKenzie Shade
•How exactly does this work? I thought the IRS phone system was just completely overloaded. How can some service magically get you through when the IRS literally tells everyone they can't take more calls?
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Harmony Love
•Sounds like a scam honestly. Why would I pay a company to call a government agency that should be accessible for free? Plus, how do I know the "IRS agent" I talk to is actually legitimate and not someone pretending?
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Caden Turner
•It works by essentially doing the waiting for you. Their system repeatedly calls the IRS using their algorithm that knows the best times to call, and when a spot opens up, it calls you and connects you directly to the IRS agent. You're definitely speaking with real IRS representatives - they're just handling the frustrating part of getting through. The service exists because the IRS is chronically understaffed and can't handle their call volume. It's not that they won't take calls - it's that they can only handle a certain number at once, so most people get the "call back later" message. Think of it like paying someone to wait in line for concert tickets for you.
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Harmony Love
I have to apologize - I was completely wrong about Claimyr. After being frustrated with my Schedule C questions for WEEKS, I broke down and tried it yesterday. Not only did I get through to the IRS (which I hadn't been able to do on my own after 9+ attempts), but I got a super helpful agent who confirmed that credit card processing fees for tax payments related to self-employment income are 100% deductible as a business expense. She even gave me some additional tips about documenting mileage for my side gig. Worth every penny just for the stress relief of having clear answers.
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Rudy Cenizo
Another option worth considering is setting up an EFTPS account (Electronic Federal Tax Payment System). There's no fee for using it, and you can schedule payments in advance. I use it for all my quarterly estimated payments - you just need to set it up ahead of time as the enrollment process takes a couple weeks.
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Natalie Khan
•Does EFTPS work for state tax payments too? I'm in California and the fees for paying state estimates with a card are even higher than the federal ones!
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Rudy Cenizo
•No, EFTPS is federal only - it stands for Electronic Federal Tax Payment System. Each state has their own system. For California specifically, they have a system called WebPay that lets you pay directly from your bank account with no fees. Most states have something similar now, but you'll need to check your state's tax website to find their specific system. Some states still charge fees even for bank transfers though, which is frustrating.
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Daryl Bright
Just a heads up that the rules are different for personal tax payments vs. business tax payments. A lot of people wrongly think that ANY fee paid to pay taxes is deductible, but thats not true! The credit card convenience fees are only deductible on Schedule C because their for BUSINESS tax payments. If you pay your regular income tax with a credit card, that fee is NOT deductible for personal taxes due to the Tax Cuts and Jobs Act.
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Sienna Gomez
•This is a really good distinction that I didn't realize. So to be clear, the transaction fees are deductible because these are estimated tax payments specifically for the sole proprietorship income, right? But if I was just paying my regular W-2 job's income tax with a credit card, those fees wouldn't be deductible?
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Amina Toure
•Exactly! You've got it right. The fees are deductible because they're directly related to paying estimated taxes on your Schedule C business income. If you were just paying regular income tax from your W-2 job with a credit card, those convenience fees would be personal expenses and not deductible under current tax law. The key is that these estimated tax payments exist specifically because of your sole proprietorship income - without the business, you wouldn't need to make these payments or pay these fees. That's what makes them a legitimate business expense that you can write off on Schedule C.
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