What expense category is Translation and Interpretation Services?

In an increasingly global marketplace, businesses often need to communicate across language barriers. Whether it's translating a legal contract, localizing a website for a new market, or hiring an interpreter for a meeting with international clients, the costs for these language services are a necessary part of doing business.

For accountants and business owners, it is essential to understand that these fees are deductible business expenses. This guide will clarify how to categorize costs for translation and interpretation services in accordance with IRS rules and how to track them for complete tax compliance.

Translation and Interpretation Services Category

The fees you pay for professional translation and interpretation services are an ordinary and necessary business expense. While the IRS does not provide a specific line item for these services, they fall under the general category of Legal and Professional Fees.

IRS Publication 334 allows for the deduction of fees charged by professionals that are directly related to operating your business. Language services provided by a professional translator, interpreter, or agency fit this description.

Important Considerations When Classifying Language Service Costs

The key to deducting these fees is to ensure they are directly related to your business operations.

Direct Business Connection

The translation or interpretation service must be for a clear business purpose. You cannot deduct the cost of translating personal documents or hiring an interpreter for a personal trip. The service must be connected to generating income or carrying on your trade or business.

Service vs. Employee

It is important to distinguish between hiring a third-party service and hiring an employee.

• Hiring a Service/Independent Contractor: When you pay a translation agency or a freelance interpreter, the fees are deducted as a professional service. If you pay an individual contractor $600 or more in a year, you may be required to issue them a Form 1099-NEC.
• Hiring a Bilingual Employee: If you hire a full-time employee who performs translation duties as part of their job, their pay is a Wages expense, not a professional fee.

Tax Implications and Recordkeeping

To deduct the costs of language services, you must report them correctly and maintain the required documentation.

How to Report the Deduction

For a sole proprietor filing a Schedule C (Form 1040), fees paid for translation and interpretation services are deducted under Part II, Line 17, Legal and professional services. Alternatively, they can be listed under Line 27a, Other Expenses, with a clear description, such as Translation Services.

What Records to Keep

You must have documentary evidence to substantiate your expenses. Your records for language services should include:

• The signed contract or service agreement with the provider.
• Invoices from the translator, interpreter, or agency detailing the services performed.
• Proof of payment, such as canceled checks or credit card statements.
• Documentation showing the business purpose of the service (e.g., the name of the client meeting or the document being translated).

How Fyle Can Automate Tracking for Language Services

Fyle helps you manage and document payments to translation and interpretation providers, ensuring every invoice is captured, coded, and ready for tax time.

• Centralize Invoices: Have your language service providers email invoices, such that they can be directly sent to Fyle for automatic and accurate data capture.
• Track by Client or Project: Code each translation or interpretation expense to a specific client, project, or international market.
• Create a Clear Audit Trail: Fyle consolidates the service contract, invoices, and proof of payment into a single, easily accessible digital record.
• Automate Your Accounting: Sync the categorized professional fee directly to the correct GL account in QuickBooks, Xero, NetSuite, or Sage Intacct.