When it comes to paying taxes, there are two types of people- those who do their taxes themselves to save money and those who prefer to hand over the difficult task to a CPA or tax software to save time and money. Looking at these two types of people, you’d notice that one thing links them together- they’re both trying to save money!
For people who prefer to do their taxes themselves, not minding the tax mistakes and IRS penalties, it’s not because they love taking risks but because the cost of consulting a CPA is a cause for concern.
Preparing your tax return can be complicated, especially when maximizing your personal and business deduction while staying tax compliant.
Before you cross that bridge of dilemma, trying to decide if you should do your taxes yourself or get help the next tax season.
Here’s a quick hint
Did it ever occur to you that you can deduct your tax preparation fees and cost on your taxes?
Yes! You can deduct your tax preparation fees whether you pay to prepare your taxes once a year or quarterly.
But you have to fall under the category of people who qualify for the tax preparation deduction. Want to know if you’re eligible for this deduction? Keep reading
Deducting Tax Preparation Fees On Personal Taxes
Before 2017, if you were an employee receiving W-2 for your taxes, you could deduct the cost of preparing your tax return if you itemize your deduction, but that changed when the Tax Cuts and Job Act was signed into law in 2017. Most itemized tax breaks were eliminated, including tax preparation fees, deducting moving expenses, medical costs,s and theft losses. However, this only applies to personal taxes, as business owners can still deduct this as a business expense.
The bright side to TCJA increased standard deductions by a significant amount. While you can no longer claim tax preparation fee deduction on your W2, you can continue to claim this expense on Schedule C if you are a statutory employee. Statutory employees are considered independent contractors but can be treated as employees for tax purposes.
Deducting Tax Preparation Fees On Business Taxes
While tax preparation fees can’t be deducted from personal taxes, self-employed taxpayers remain eligible. From 2018 through 2025, only business owners can claim a deduction for tax preparation fees. If you run a business as a sole proprietor, you can claim your tax preparation fees under your business expenses and on Schedule C. This includes tax software or working with a tax expert. Those eligible include:
- Independent contractor or Sole proprietor who files a Schedule C for Form 1040 or 1040-R, which helps you report income or losses from the business you run as a sole proprietor
- A farmer who files a Schedule F, which allows you to report income earned from agricultural activities
- Business owners whose businesses are regarded as limited liability corporations, S corporations, or partnerships
- Landlords earning income from rental properties or other income reported when filing Schedule E.
What Part Of Your Tax Preparation Fee Is Deductible?
The cost of your tax preparation fee can be deducted by adding it to your schedule C, For E since they are considered to be ordinary and necessary to running your business. However, you can’t deduct the legal fees related to acquiring business assets. You should also know that you can only deduct the amount of the fee accrued by preparing the business side of your taxes, and the rest falls under your personal expenses.
In general, the IRS covers the following expenses:
- Cost of tax preparation software programs
- Fees accumulated for e-filing (credit card fees included)
- Fees from a tax expert who includes both meetings and the actual cost of return preparation
In addition, the IRS allows you to deduct your tax preparation fees during the year you incur them. This means you can only deduct your tax preparation fee in the year you paid them. It doesn’t matter if the fees were for preparation for a prior tax year.
Why Work With A Tax Expert?
Every business owner’s dream is to maximize opportunities and convert them into profit. Working with a tax expert like Tax Goddess is the best way to achieve that because there’s no single victory in the game of taxes.
At Tax Goddess, our focus is helping every successful business owner reduce their tax burden to 6% or less with IRS-approved tax strategies. To beat the IRS at its game, you need a war chest of tax strategies to help you beat complex tax codes and claim more tax savings. And what we do best is to equip you with such tax strategies while helping you reach all your financial goals and keep more taxable income.
Ready to reach your tax peak? Reach out to the Tax Goddess Team for a free consultation today.
