What expense category are banking fees?

Understanding how to categorize banking fees is important for keeping your financial records accurate and maximizing potential tax deductions. Let's break down where banking fees fit in your expense reports and why it matters for your business.

Classifying banking fee expenses

Banking fees can fall into different expense categories depending on their nature. However, we have two main banking fee expenses. These are:

• Operating expenses: Necessary for day-to-day business operations.
  • Monthly service charges for business accounts.
  • ATM fees for cash withdrawals.
• Financial expenses: Related to financial activities but not directly tied to core operations.
  • Wire transfer fees for sending money.
  • Overdraft fees due to insufficient funds.

Examples of banking fee expenses

However, we have more banking fee expenses for businesses. Here are common banking fees businesses might encounter:

• Monthly service fees: Regular charges for maintaining your business bank account.
• Transaction fees: Costs per transaction, like processing wire transfers or ACH payments.
• ATM fees: Charges for using an ATM, especially if it's out-of-network.
• Overdraft fees: Fees when a transaction exceeds your account balance.
• Returned deposit fees: Charges when a deposited check doesn't clear.

For example, if your bank charges a $15 monthly service fee, you'd categorize that as an operating expense under banking fees.

Tax implications of banking fees

When it comes to taxes, properly categorizing banking fees can have so many benefits, so let’s look at ome of them.

• Deductible expenses: Most banking fees are tax-deductible as ordinary and necessary business expenses.
• Accurate reporting: Correct classification ensures your financial statements reflect true operational costs.
• Simplified compliance: Helps streamline the tax filing process and maintain compliance.

Remember to:

• Keep detailed records of all banking fees.
• Consult with a tax professional to ensure you're maximizing deductions and following IRS guidelines.

Let Ramp automate your expense process

Managing and categorizing banking fees doesn't have to be a hassle. Ramp's financial management platform automates expense tracking, ensuring consistent categorization and accurate records. Save time and gain clearer insights into your spending patterns, so you can focus on what matters most—growing your business.