Fines as deductible expenses

[SunTaxMan]

For years I have accepted that fines and penalties are "never" deductible, but also recongizing that (e.g.) if the penalty fee is calculated as a percentage of the payment (as on a mortgage or loan payment) it can be classified as, and included with other, "interest" rather than "penalty."

With the economic instability we are seeing, I am seeing Non-Sufficient Funds appearing more frequently in come client's records and am wondering how all of you are handling this. I can see the rejecting, as deductible, a nominal amount for NSF (one payment or even a couple hundred dollars) in a year. But I am seeing higher amounts, some as much as several thousand dollars in a year. Sloppy recordkeeping I understand, sloppy tracking of checking account balance also, but am wondering if there has been any practical change in deducting these amounts. My first thought is that the amount of the "penalty" is irrelevant. It either is, or is not, a "penalty."

And, HOW to decuct, if deducted at all - include it is "Bank Service Charges" with no comment?

Comments? Thanks

[ILLMAS]

Good question, I would say if it's a personal residence, NO because at the end the 1098 only shows interest, PMI and property taxes paid on the boxes, maybe on the back side it might show the payment history including late fees. For a business account I would say a YES for bank service charges because it's part of doing business. Now writing checks without funds, I think that's a bigger problem.

[jainen]

>> fines and penalties are "never" deductible<<

That only refers to traffic tickets and other government fines. Bank charges are simply fees spelled out in the private contractual relationship. Bank charges of all sorts are deductible in the ordinary way. If not otherwise provided for in the code, they are business expenses on a business account and investment expenses on a personal account.