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Card filing fees deductible

Monday, April 13
Posted 11 a.m. EDT

Credit card filing fees now deductible

If you pay your taxes with a credit card, you might also create a new deduction for yourself next filing season.

The IRS has changed its mind about that 2.49-percent fee that the credit card companies charge to process tax payments. That amount is now deductible.

Unfortunately, as I mentioned, it won't help you this tax season.

Even more unfortunate, when the tax break is available next filing season, many folks won't be able to actually claim the deduction.

First, you must itemize to claim the expense. The so-called convenience fee counts as a miscellaneous deduction on Schedule A.

And that brings us to our second deduction caveat. Before you can write off miscellaneous expenses, the total must be more than 2 percent of your adjusted gross income.

Many filers never meet that filing threshold. There are some ways to help pump up that potential deduction, detailed in "Taking advantage of miscellaneous deductions." But for most, it's going to take a hefty tax bill and assoicated processing fee to make a deduction diference.

So realistically, the claim is somewhat limited.

And more notable, the IRS itself says that each year, most people tend to use the standard deduction. That means this new tax break won't matter one bit to the majority of filers.

Still, if you do happen to find this new write-off of use, then great! When it comes to taxes, every little bit could help.

Coordinating filing deductions: I've also got to give the IRS credit for finally getting its deduction ducks in this area all in a row.

Taxpayers have always been able to claim tax preparation charges, ranging from accountant or other tax pro fees to the cost of tax prep software to tax guidance books (like mine!), as a miscellaneous itemized expense.

Allowing the credit card payment fee is just a logical extension of that deduction process.

Why the change? In announcing the new deduction, the IRS didn't elaborate on why it changed its mind.

I suspect, however, that as the agency works to get more of us to electronically file, it realized that for some, the processing charge was an obstacle.

I know that in past filing seasons, even if the credit card payment fee wasn't that much in actual dollars, I just didn't want to pay any more than I had to -- to anybody! -- on April 15. So in those years that I owed the IRS, I sent both my forms and payment through the U.S. Postal Service.

I found the $4 or so it costs to send my taxes certified mail a lot more acceptable than a $15 or more e-filing fee and another 2.5-percent-of-my-tax-bill credit card charge.

This year, though, with many folks being able to e-file without cost via Free File, as well as the major tax software manufacturers waiving the charge for many of their otherwise paying clients, that e-filing charge is not an issue.

And now, although the credit card fee is still around, at least there's the possibility it can be deducted next year.

Maybe that will help the IRS reach its goal of every single filer eventually taking care of their taxes electronically.

-- Posted: Apr. 13, 2009

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