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.