Deduction for Tax Preparation Fees

Triston Martin

Oct 12, 2022

You're likely currently compiling receipts and documents, considering strategies to reduce your tax liability, and planning how you'll file your taxes as April 15th approaches. You have the option of working with a Raleigh CPA firm for less stressful tax preparation or using tax preparation software on your own.

Tax preparation fees may occasionally be deductible from your taxes, but not everyone qualifies. Two topics that our CPAs go into greater detail about are who can deduct the expense of filing their taxes and how changes to the tax code may affect you.

A Review of the Tax Code's Changes

Today, if you file a standard deduction and you are a W-2 employee, you cannot deduct any fees or expenditures for filing your taxes (which is a majority of people). You are accurate if you believe that has changed; up until 2017, anyone could deduct the expense of filing their taxes for the prior year. For instance, you may deduct the payment of filing your 2015 taxes from the 2016 return you submit. But in 2017, things changed.

The US tax code was updated as a result of the Tax Cuts and Jobs Act (TCJA), which was passed and signed into law in 2017. Although the standard deduction was significantly increased, for several individuals, line-item deductions were also eliminated, including the deduction for filing one's taxes. Company owners can still deduct this amount as a business expense; however, this only applies to personal taxes.

Tax preparation costs can be written off as a business expense.

For business owners, tax preparation services are regarded as an "ordinary and essential" expense even though they cannot be deducted from personal taxes. If Congress does not extend the TCJA, this implies that if you are self-employed, you can remove your tax preparation costs as a business expense at least through 2025. Specifically, individuals who fill out and submit Schedule C for Form 1040 or 1040-R, which enables you to record income or losses from enterprises you run as a sole proprietor, are eligible; sole proprietorships;

Tax preparation costs may also be written off for independent contractors and statutory employees (independent contractors who are treated as employees for tax withholding). This includes commission-only workers who deliver food and beverages (such as those who work for DoorDash or InstaCart); full-time local or traveling salespeople who are paid only on commission; life insurance sales associates; and independent contractors, such as graphic designers.

To prevent penalties and fees, it's crucial to speak with a seasoned tax professional if you're unsure if these apply to you.

Tax Preparation Fees and Costs to Write Off

If you are an independent contractor or business owner and qualify to deduct your tax preparation costs, you may remove: using your tax preparation program, such as Turbotax;

E-Filing Fees

the price of hiring an accountant or tax expert, which includes the cost of filing the return and any consultations;

Both audit representation and legal fees.

It's vital to keep in mind that you can only deduct the percentage of the price linked to drafting your Schedule C, E, or F, which are part of your company taxes. Anything else is seen as personal and is not allowed. If you're unsure of how to divide the charges, consulting with an expert CPA is advised.

Choose the Right Prepper for You

You should consider the kind of preparer who can match your needs after considering your tax preparation needs. You have the following options for a paid preparer:

Licensed to practice law by state courts or state bars is an attorney. Some persons may have graduate degrees in tax law. If they set up a "Kovel Agreement," whereby the taxpayer engages a tax attorney who then hires a tax accountant to create the returns, working with a lawyer can afford attorney-client privilege for issues addressed.

A person who has completed continuing education courses and the Special Enrollment Examination is an enrolled agent. An enrolled agent has unrestricted representation privileges before the IRS, just like lawyers and CPAs do.

How Much Do Taxes Cost to File with a CPA?

A Form 1040 and state tax return without itemized deductions cost, on average, $220 to prepare and file in 2021, whereas an itemized Form 1040 and state tax return cost, on average, $323.

What Will It Cost Me to File My Taxes Online and via E-File?

Numerous online software programs, including H&''R Block and TurboTax, provide free versions for simple federal returns. Depending on the complexity of the return, more intricate instances can cost up to $150 or more.

What Distinguishes an Accountant from a Tax Preparer?

Depending on the person, there can be a price difference between an accountant and a tax preparer. Since certified public accountants occasionally provide financial services in addition to tax preparation, they may be more expensive than employing a tax preparer to file simple taxes.

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