CREDIT AND DEBIT CARD FEES USED TO PAY TAXES MAY BE DEDUCTIBLE

As I reported in a recent blog entry although it is possible to charge the amount you owe for taxes on your credit card the cost is very expensive and we normally advise that you do not take this option. However, should you use your credit card you should know that the IRS just announced that the fees you pay may be deductible. Here is the announcement that came out April 7, 2009.

Larry Kopsa CPA

WASHINGTON — Credit or debit card convenience fees charged for paying federal individual income taxes electronically are deductible for some taxpayers who itemize, the Internal Revenue Service announced today.

Federal law bars the IRS from paying any fees associated with these credit or debit transactions. Card processors normally charge taxpayers for convenience fees when they use their credit or debit card to pay taxes. Fees vary but average about 2.5 percent of the tax payment.

In reassessing a previous position, the IRS decided that the convenience fees associated with the payment of federal tax, including payment of estimated tax, can be included as a miscellaneous itemized deduction. However, only those miscellaneous expenses that exceeded 2 percent of the taxpayer’s adjusted gross income can be deducted.

Not everyone who pays the fees will be able to deduct them. Taxpayers first must be eligible to file a Form 1040 Schedule A to itemize their expenses. And, taxpayers must have enough miscellaneous expenses to exceed the 2 percent threshold. These expenses include items such as tax preparation costs, job search expenses and unreimbursed employee expenses.