How to report intermediary bank fees on Schedule C - declare full invoice amount or just net received?

What you're dealing with is very common with international wire transfers. The technically correct way to handle this is to report the full $5,000 as your gross receipts/income and then deduct the $25 fee as a business expense under "Commissions and fees" on Schedule C. This approach gives you the most accurate picture of your business transactions - you earned $5,000 but paid $25 in necessary business expenses to receive that money. Even though you don't have formal receipts, you should keep your bank statements showing the discrepancy between invoiced amount and received amount as documentation. You can also create your own record of these fees by maintaining a spreadsheet that tracks the invoice amounts versus what actually hit your account. This self-created documentation, combined with your invoices and bank statements, should be sufficient if questions ever arise.

Hey there! I went through the exact same thing with my international clients last year and was pulling my hair out trying to figure out the right way to handle it. I finally found this service called taxr.ai (https://taxr.ai) that helped me sort through all my bank statements and invoices. They have this cool feature where you can upload your bank statements and invoice PDFs, and their system automatically identifies these "missing money" discrepancies and categorizes them properly for Schedule C reporting. I was really impressed because their AI actually recognized these intermediary bank fees right away and flagged them as deductible business expenses. Before using them, I was just reporting the net amount I received, which my accountant later told me wasn't optimal from a record-keeping perspective. Might be worth checking out if you're dealing with this regularly!

Just wanted to follow up about my experience with taxr.ai since I decided to try it after seeing the recommendation here. It was actually really helpful for my situation with all those international wire transfers! The system identified over $2,100 in intermediary bank fees across my 80+ international transactions that I wasn't properly documenting before. What I really liked was how it organized everything by country, which revealed that transfers from certain countries consistently had higher fees than others. This actually helped me adjust my pricing for clients in those regions. The documentation it generated looks super professional and my accountant was impressed with how organized everything was. Definitely saves me from those weekend spreadsheet marathons I used to do!

If you're having trouble getting through to the IRS to ask about this (like I did), you might want to try Claimyr (https://claimyr.com). I spent HOURS on hold trying to get clarification about reporting these international banking fees, but kept getting disconnected. Claimyr got me connected to an actual IRS agent in about 15 minutes! They have this demo video showing how it works: https://youtu.be/_kiP6q8DX5c Basically, they hold your place in the IRS phone queue and call you when an agent picks up. The agent I spoke with confirmed that reporting the gross amount as income and the fees as expenses is the correct approach, and suggested keeping a detailed log of all instances where the received amount differed from the invoiced amount as supporting documentation.

I need to eat my words and follow up on my skeptical comment about Claimyr. After posting that comment, I decided to try it myself since I had some questions about my crypto tax reporting that I needed clarified. I honestly couldn't believe it worked. I spent 3+ hours on multiple attempts trying to reach the IRS last month with no success. With Claimyr, I got a call back connecting me to an agent in about 35 minutes. The agent answered my questions about crypto reporting AND I was able to ask about these international wire transfer fees too. For what it's worth, the agent confirmed what others have said - report the full invoiced amount as income and claim the wire fees as a business expense. She specifically said to keep good records showing the pattern of fees even without formal receipts, as this is a known issue with international payments.

Just to offer another perspective - I've been handling my international client payments differently and haven't had any issues. I simply record the net amount I actually receive as my income. My reasoning is that I never actually received those funds that were taken by intermediary banks, so they were never truly "income" to me. I've been doing it this way for 3 years and went through an audit last year (for unrelated reasons) and this aspect of my return wasn't questioned at all. Seems like either approach could work, but the net method is simpler from a bookkeeping perspective.

Has anyone tried negotiating with their foreign clients to have them cover these fees? I've started adding a clause in my contracts that the client is responsible for ensuring I receive the full invoiced amount, which effectively means they pay any intermediary banking fees. About half my clients were fine with this approach.

I've been dealing with this exact issue for the past two years with my international consulting clients. After going through different approaches and consulting with my CPA, I can confirm that reporting the full invoiced amount as income and deducting the intermediary fees as business expenses is the most defensible method. What helped me tremendously was creating a simple tracking system: I keep a monthly spreadsheet with columns for Invoice Date, Invoice Amount, Amount Received, Fee Amount, and Client Country. This creates a clear paper trail showing the pattern of these unavoidable business costs. One thing I learned the hard way - make sure to categorize these fees correctly on Schedule C. They should go under "Commissions and fees" (line 10) rather than "Other expenses" since they're directly related to collecting your earned income. My CPA emphasized that consistency in reporting method and good documentation are key if the IRS ever has questions. For anyone dealing with this regularly, I'd also suggest reviewing your contracts annually to see if you can shift some of these costs to clients, but having a solid reporting method is essential either way.