With April 15th rapidly approaching, you’re probably gathering receipts and records and debating how your taxes will get done. You could go the DIY route with tax preparation software or take the less stressful route and work with a CPA firm in Raleigh. No matter which option you choose, you may be able to deduct tax preparation fees and costs on your taxes, but it’s not that simple, as everyone can deduct the entire cost. In fact, it’s surprisingly complicated. To help you get a better understanding of whether you’re eligible for this deduction, we’re sharing a more in-depth look.
A Look Back at the Tax Code Changes
In 2017, the Tax Cuts and Jobs Act (TCJA) was passed and signed into law, which led to an overhaul of the United States tax code. While it did increase the standard deduction by a significant amount, it eliminated many of the individual, line-item deductions, including the tax preparation cost deduction. However, this only affects personal taxes, so some people are still eligible to claim the deduction as it relates to their business, as we explain below.
Who Can Deduct Tax Preparation Fees?
While tax preparation fees can’t be deducted for personal taxes, they are considered an “ordinary and necessary” expense for businesses. This means, if you are self-employed, you can deduct your preparation and filing costs as part of your business expense deductions. Those eligible for this are:
- Sole proprietorships who fill out and file Schedule C for Form 1040 or 1040-R which allows you to report income or losses from businesses you operated as a sole proprietor.
- Farmers who file Schedule F which reports income earned from agricultural activities.
- Individuals receiving income from rental properties, partnerships, S corporations, estates, or royalties and report this via Schedule E.
Additionally, certain independent contractors are also able to use this deduction, including:
- Food and beverage delivery drivers who are paid on commission (such as working for DoorDash or InstaCart);
- Dry cleaning pick up and delivery drivers;
- Full time travelling or local sales people who get paid solely on commission;
- Life insurance agents.
Tax Prep Fees and Costs to Deduct
If you are eligible to deduct your tax preparation fees, you can deduct:
- DIY tax preparation software (like TurboTax);
- Working with an accountant or tax preparation professional to complete your return, including tax consulting;
- Legal fees and audit representation.
It’s important to note you can only deduct the portion of the fee related to preparing the business side of your taxes, such as Schedule C, E, or F. Anything besides this is considered personal, and thus, ineligible. Working with an experienced CPA is recommended if you’re not sure how to break up the costs.
Contact Us for Tax Preparation Help Today!
We understand that both personal and business tax preparation are complicated and even simple deductions seem needlessly complex. Fortunately, with over 20 years of accounting experience, we have the experience necessary to minimize your stress while reducing your tax burden. To learn more or to schedule a consultation, reach out to us today at (919) 493-2603 or fill out the form below to get started. We have offices in Raleigh and Durham, and serve all surrounding communities.