Can you deduct tax preparation fees? Can you deduct filing fees? The answer is yes, you can. But before we go into the details of how taxpayers can do this, it is important that we cover some of the basics.
If you are self-employed and your income was over $400 during the year then congratulations! You have enough money to incur deductible expenses and need not fear whether or not these deductions will hurt your return. In other words, if your income was less than $400 for the year then don't worry about any of this because there is no deduction available for taxes paid on such a small amount of income.
If you are not a self-employed worker and you are only an employee, it may be a different story.
Let's discuss deducting tax preparation fees.
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If you are a W-2 employee, unfortunately, you are not able to deduct your tax preparation fees. The IRS recently updated its rules in 2017 regarding tax deductions to include only self-employed individuals and not employees.
The Tax Cuts and Jobs Act eliminated many itemized tax breaks such as medical, moving expenses, theft loss, and the cost of tax preparation from personal income taxes. In order to deduct these fees, the cost had to exceed two percent of your adjusted gross income (AGI). 2% of your adjusted gross income is quite a lot if you do the math. If your AGI was $40,000, you had to have tax preparation fees over $800.
We recommend you still work with an accountant when you are preparing to file your taxes. Even if business preparation costs are not eligible to be a miscellaneous itemized deduction, a tax professional can still help taxpayers sort through the complicated tax laws and discover other deductible expenses.
However, this doesn't mean that you are out of luck if you are not a business owner or homeowner. You can opt to take the Standard Tax Deduction.
The Standard Tax Deduction is a predetermined amount the IRS granted to tax payers for the year. It is a set, flat-rate, no-questions-asked amount you can claim to lower your tax bill. In 2021 the standard deduction is $12,550 for singles filers and married filing separately.
If you take this route rather than claiming your itemized deductions, you will be able to claim a deduction on the standard amount for the year.
You have to pick between the Standard Tax Deduction or itemized on your tax return--you cannot claim both. If your standard tax deduction is greater than your itemized deductions total, you probably shouldn't itemize to save money.
If you are a self-employed worker you are eligible to deduct tax preparation software and preparation fees from professional accountants.
You can deduct the full amount for the fees directly related to your business's tax prep as they are an "ordinary" and "necessary" expense.
Miscellaneous itemized deductions include tax preparation software or professional fees.
The only catch is if you DON'T claim the Standard Tax Deduction on your tax return.
If you meet the requirements to deduct tax prep fees, you can write-off:
Again, tax preparation fees or tax software are only eligible to be written off for the business-related portion of your tax returns. This includes Schedule C, Schedule E, or Schedule F.
Otherwise, the fees are personal expenses and cannot be deducted. We recommend you consult with a tax preparation professional or accountant to see if these types of fees are eligible for you. Be sure to store your tax preparation receipts for at least three years after filing in case you get audited.
There you have it. The quick and easy guide to writing off tax preparation fees. We hope you found the information useful for when you are preparing to do your taxes. If you are a self-employed worker who is looking to manage your expense reports, maximize your deductible expenses, and easily file your complicated taxes, try Bonsai Tax (sign up for a 14-day free trial!). Our expense tracker can help you minimize the headache of dealing with taxes.
Our app automatically tracks expenses and sends you reminders for important tax dates so you never miss a deadline and receive a late filing penalty. Test drive our software today.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?