With April 15th rapidly approaching, you’re probably in the midst of gathering receipts and records, looking for ways to minimize your tax burden, and debating how your taxes will get done. You may choose to do your own taxes using tax preparation software, or you may choose the more stress free route and work with a CPA firm in Raleigh.
In some cases, you can deduct tax preparation fees and costs on your taxes, but not everyone is eligible for this deduction. Our CPAs are sharing a more in-depth look at who can deduct the cost of preparing their taxes and how changes in the tax code may affect you.
A Look Back at the Tax Code Changes
Today, if you are a W-2 employee, you can not deduct any costs or charges for preparing your tax return if you file a standard deduction (which is a majority of people). If you feel that has changed, you’re correct; up until 2017, anyone could deduct the previous year’s tax preparation costs from their taxes. For example, you could deduct the cost to prepare 2015’s taxes from the return you file in 2016. However, this changed in 2017.
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 deduction for personal tax preparation. However, this only affects personal taxes, and business owners can still use this deduction as a business expense.
Deducting Tax Preparation Fees as a Business Expense
While tax preparation fees can’t be deducted for personal taxes, they are considered an “ordinary and necessary” expense for business owners. This means that if you are self-employed, you can deduct your tax preparation fees under your business expenses, at least through the year 2025 if Congress does not renew the TCJA. Specifically, those eligible includes:
- 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;
- Business owners whose businesses are classified as partnerships, limited liability corporpations, or S corporations;
- Farmers who file Schedule F which reports income earned from agricultural activities;
- Individuals receiving income from rental properties, royalties, or other income reported when filing Schedule E;
Independent contractors and statutory employees (independent contractors who are classified as employees for tax withholding purposes) may also deduct tax preparation fees. This includes:
- Food and beverage delivery drivers who are paid on commission (such as working for DoorDash or InstaCart);
- Full time travelling or local sales people who get paid solely on commission;
- Life insurance agents;
- Freelance workers, such as graphic designers.
If you aren’t sure if these apply to you, it’s important to consult with an experienced tax professional to help you avoid fines and fees.
Tax Prep Fees and Costs to Deduct
If you are a business owner or independent contractor and are eligible to deduct your tax preparation fees, you can deduct:
- Tax preparation software you use yourself, like Turbotax;
- Fees for e-filing;
- The cost of working with an accountant or tax professional, including the cost of the return preparation as well as any consultations;
- 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) 872-0866 or fill out the form below to get started. We have offices in Raleigh and Durham, and serve all surrounding communities.