Many taxpayers lost a tax deduction for the expenditures connected with filing their tax returns in 2018 after TCJA took effect since they no longer had the option of itemizing deductions.
Unless you’re self-employed, you can’t deduct the costs of tax preparation from your taxes. You’ll discover more about the tax preparation deduction and whether or not you qualify for it in this post.
How Much of My Costs Are Tax Deductible?
Determine how much of your tax-preparation expenses you may deduct before moving on to the next step. According to IRS guidelines, taxpayers are responsible for the following costs:
- Accounting or tax preparation fees, which include both meetings and actual preparation costs, from a professional accountant or tax preparer
- The price of tax-prep software
- Fees associated with electronic filing (including credit card fees)
Legal and professional costs for your company may also be deducted on Schedule C. Legal expenses used to acquire company assets, on the other hand, are normally not deductible.
However, it’s possible that you won’t be able to deduct the whole cost. It’s possible to claim just a fraction of an accountant’s fee if he or she prepares your Schedule C, E, or F—the component of your taxes that are devoted to your company. Everything else is considered a personal miscellaneous cost, which is not tax-deductible.
Do Tax Preparation Fees Continue to Qualify for a Tax Deduction?
If Congress does not reauthorize legislation from the TCJA, only self-employed individuals may take a deduction for tax preparation services for tax years 2018 through 2025. You may claim this deduction on Schedule C if you are a sole owner who runs a business.
On Schedule C, statutory workers may also claim this expenditure. In reality, statutory workers are independent contractors, but for tax reasons, they might be considered employees. They include, for example:
- On a commission-based basis, drivers who sell food or drinks other than milk.
- Drivers that pick up or deliver dry cleaning or laundry and are paid a percentage of the fee
- Traveling or local salespeople that make their living solely via their profession
- As long as the company sets the tasks and materials, remote workers may work from home.
- Brokers of life insurance
What About the State’s Refunds?
State tax preparation and state tax difficulties are also addressed for you whether you are a company owner or a statutory employee. All tax-related expenses may be deducted as long as they are directly linked to your business. The same holds true for any municipal taxes that you may have to pay. If you spent the money on your company, you may be able to claim a deduction under certain regulations and standards.
Consult a local tax expert to learn about state-level deductions for tax preparation services. In certain states, there is no income tax, whereas in New Hampshire, only dividends and interest are taxed until the year 2025. This deduction may or may not be available in different states.
How to Deduct Tax Preparation Fees from Your Taxes
Schedules C, F, and E allow you to deduct the cost of tax preparation since it is deemed “ordinary and essential” for the operation of your company.
Making a Schedule C Deduction
Legal and professional services are included on Schedule C. Line 17 in Part II of the schedule, titled “Expenses,” is where you’ll find the information. A tax dispute with the IRS over your company profit or loss might also be included in these expenses.
Schedule F – Deduction Claim
Agriculture is the subject of Schedule F, “Profit or Loss.” “Other costs” appear on Line 27 of this form, which includes tax preparation fees. On the lettered lines, the Internal Revenue Service (IRS) requests that you detail the purposes for why you incurred these costs. Inputs such as “tax preparation costs” and “office expenditures” are good examples. It is important to remember that these tax charges must be directly related to your agricultural company, not personal tax matters.
In order to deduct “Supplemental Revenue and Loss,” taxpayers must use Schedule E. Schedule E encompasses a broad range of tax circumstances and companies, including income from the rental of real estate and royalties. However, you cannot deduct the full expense of preparing your tax return, just the portion related to each of these kinds of income. For this and any other connected schedules, or for tax advice relating to this income, you may only claim the costs of creating these and any other related schedules.
If you’re a landlord and you utilized any of your properties for personal use during the tax year, things may become a little more complicated. The proportion of your company expenditures that are deductible must also be determined by you or your tax expert when separating out business-related tax preparation expenses. Expenses may only be claimed if you utilized the property for fewer than 14 days or for 10% of the period it was leased to others, if it was left unoccupied for a long time. In addition, it must have been leased at a price that was reasonable in the market.
Is it possible to deduct tax preparation fees?
If you’re eligible to deduct tax preparation costs, you may deduct any form of fees. Regardless of whether you pay a flat cost, a % of your return, or any other price structure, it doesn’t matter.
How much does it typically cost to get your taxes prepared?
The cost of tax preparation varies depending on the complexity of your tax situation. Complicated taxes need more tax forms, which in turn necessitate further fees. If you hire an accountant, you may expect to pay anywhere from $220 to $323 on average for a standard tax return.