Can you deduct interest and bank fees for your business?

Interest is what a lender charges you to borrow money. Bank fees are what a bank charges you to keep an account or move money. Both are common costs for a small business.

You can often deduct them. The test for interest is not which bank lent the money. The test is what you spent the money on.

The short version

• Interest on money you use in your business is generally a business expense (Publication 334).
• Interest on personal loans is not deductible on Schedule C (Publication 334).
• If a loan is part business and part personal, you divide the interest between the two parts.
• What secures the loan does not matter. You follow how the money was used.
• Bank fees are on the IRS list of other expenses a business can deduct.
• The money you borrow is not income. Only the interest is the cost.

Words to know

Principal is the amount you borrowed. Each loan payment pays back part of it.

Interest is the extra amount the lender charges for the loan.

Tracing means you follow the borrowed money to what it paid for. That tells you if the interest is business or personal.

The rule: follow the money

Publication 334 says interest relates to your business if you use the proceeds of the loan for a business expense. It also says it “doesn’t matter what type of property secures the loan.” You must be legally liable for the debt, and you and the lender must intend that it is repaid (Publication 334).

The Schedule C instructions say the same thing: “Generally, you allocate interest expense by tracing how the proceeds of the loan were used” (Instructions for Schedule C).

So a personal loan that bought business equipment can give business interest. A business card used for a holiday gives personal interest.

Car and van loans

If you are self-employed and use your vehicle in your business, you can deduct the part of the loan interest that matches your business use (Publication 334). A mileage log gives you that share.

Beginning in 2025, you may be able to deduct some of the personal-use share as qualified passenger vehicle loan interest on Schedule 1-A. You cannot deduct the same interest on both Schedule 1-A and Schedule C (Instructions for Schedule C). Ask a tax professional if your vehicle qualifies.

Credit cards

Interest on a business card is business interest when the charges were business spending. If you put personal costs on it, the interest on that part is personal. A personal card used for a few business costs is hard to split. A separate business card avoids the problem. See how to separate business and personal finances.

The card payment itself is not a new expense. You already recorded each business purchase when you made it. To check that every charge is recorded once, reconcile your credit card statement each month.

Bank fees and card processing fees

Publication 334 lists bank fees among the other expenses you can deduct. Monthly account fees, wire fees and the fee on a business card are examples. Fees on your personal account are personal.

When a card processor keeps a fee from a sale, record the full sale as income and the fee as an expense. If you record only the deposit, your income and your fees both look too small. See Form 1099-K explained for why the full amount matters.

Where it goes on Schedule C

For 2025 returns (Instructions for Schedule C):

• Line 16a: mortgage interest on business property, paid to a bank or other financial institution that sent you a Form 1098.
• Line 16b: other business interest.
• Line 27b: other expenses, such as bank fees. You list each one in Part V (line 48) and carry the total to line 27b.

An example

Marcus grooms dogs from a van. (He is an example, not a real person.) He takes a $10,000 personal loan. He spends $6,000 on grooming tables and clippers, and $4,000 on a family trip.

He puts the $42 on his books as a business expense. The $28 is personal and not deductible. His business account also pays a $15 monthly fee. That is a business expense too.

He keeps a short note of how he spent the loan, with the receipts. The note is easier to write when the business part goes straight into the business account.

A Righto tip

In Righto, you can import your bank and card statements (CSV, OFX or PDF) and give each fee and interest charge a category. The Profit and Loss report then shows what you paid in interest and fees this year. You can also ask your own AI agent, such as Claude Code, to find them. See how agents work with Righto.

Common questions

Can I deduct the whole loan payment? No. Only the interest part is the cost. The rest pays back what you borrowed, and borrowed money was never income.

Can I deduct interest on my personal credit card? Not interest on personal spending. If some charges were for the business, the interest on that part can be business interest under the tracing rule. It is hard to work out, so a separate card is better.

Are fees on my personal bank account deductible? No. Only fees on accounts you use for the business.

What to do now

1. List every loan and card your business uses.
2. Write down what each loan paid for.
3. For a mixed loan, work out the business share and keep the receipts.
4. Record card sales at the full amount and the processor fee as an expense.
5. Track your business expenses each month, so interest and fees are not missed.

Righto is free, easy to use and needs no account.

Sources

• Publication 334, Tax Guide for Small Business, IRS
• Instructions for Schedule C (Form 1040) (2025), IRS