A reader recently posed an excellent question about how to report fees from invoice factoring when preparing taxes.
In addition to some processing fees, factoring companies usually charge a percentage of the receivable that you’re factoring. But is reporting as declaring the fees as if they were interest?
How factored invoices are reported to the IRS can vary based on the specific of your factoring arrangements. In some situations, you will have actually sold ownership of the receivable to the factoring company and in those situations may only be responsible to claim what you received from the factor as income. In other situations, you will retain ownership of the receivable and simply be advanced funds. In those cases you would likely claim the receivable as income and the total fees as deductions.
We recommend speaking with both your factoring company and tax professional to make sure you’re on the right side of the IRS.
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