People may deduct their tax preparation fees if they itemized their deductions before the Tax Cuts and Jobs Act (TCJA) went into force in 2018.
That’s true that it wasn’t an excellent deduction. Itemizing means submitting Schedule A with the tax form and foregoing the itemized deductions, which the TCJA more or less quadrupled. In addition, a general deduction does not exceed 2 percent of your adjusted gross income; therefore, you cannot deduct it (AGI). These regulations don’t apply to a small number of taxpayers, though.
Can You Deduct Tax Preparation Fees?
No, you can not deduct tax preparation fees for personal taxes in the US anymore (from 2018. and later). However, you can deduct tax preparation software costs as miscellaneous itemized deductions. In addition, tax preparation fees are deductible on Schedules C, F, and E as “ordinary and necessary” for running your business.
Which taxpayers are still able to deduct their tax preparation fees?
From 2018 forward, only self-employed individuals can deduct tax preparation expenses. So, if you fall into one of the following categories, you must be:
- As a single owner, you’ll need to submit Schedule C with your taxes
- This is a farmer who submits Schedule F with your tax return
- Earnings from investment homes or royalties reported on Schedule E
To learn how to calculate tax percentage from total visit our article.
This expenditure can likewise be claimed on Schedule C by statutorily-employed workers in the same way. However, they can be taxed as workers. They are:
- Other than milk, commission-based drivers of various food and beverage goods.
- The commission-based drivers that pick up and deliver dry cleaning or laundry.
- Traveling or local salespeople, if this is their major source of income
- If the company dictates their duties and supplies them, they can work remotely from home.
- Agents who sell insurance on the life
Tax Deductible Amount
There is still the matter of figuring out exactly what percentage you may deduct from your tax preparation expenses. Meeting with a tax expert for guidance and prepare your return is covered by the insurance. Tax preparation software is also mentioned. You can deduct legal expenses, audit representation fees, books, magazines, and even the cost of e-filing.
It’s possible, though, that you won’t be able to deduct the whole cost. In other words, only the part of the cost due to preparing your Schedule C, E, or F—the business element of your taxes—can be deducted from your tax refund. As a result, everything else no longer qualifies as a tax-deductible personal cost.
Making a Claim for Tax Preparation Fee Deduction
It is permissible to deduct the cost of tax preparation services on Schedules C and F, and E since they are “ordinary and essential” to the operation of your business.
Using Schedule C to seek the reduction
On Schedule C, they are listed as “legal and professional services.” However, on the second part of the schedule, under “Expenses,” is Line 17. In particular, they might include any costs incurred in resolving trade disputes with the IRS over your business profits or losses.
Using Schedule F to claim the deduction
A farmer’s profit or loss is reported in Schedule F. This form includes “other costs” at lines 32 a) through f). On the lettered lines, the IRS wants you to explain what these costs were for. Consider putting “tax preparation costs” on Line 32a and “office expenditures” on Line 32b. In other words, these tax charges must be clearly related to your agricultural operation and not to your personal tax situation.
Claiming the Deduction on Schedule E
It can claim a deduction from supplemental income and losses on Schedule E, covering various tax circumstances and businesses, such as rental income from real estate or royalties. However, you cannot deduct the whole expense of preparing your tax return. Costs of producing this schedule and any other relevant ones, or tax advice on matters directly related to this income, are the only expenses that can be claimed.
It might be a little problematic for landlords who resided in or utilized any of their homes personally throughout the tax year. When it comes to corporate tax preparation, it’s not just a matter of breaking down the expenditures. A home or apartment that has been unoccupied for more than 14 days cannot be deducted in full. If it has been vacant for more than 14 days, you may only deduct 10 percent of the rental cost. If you rented it at fair market value, that’s a plus.
If you have rental revenue or royalties, you can deduct tax-related costs on Schedule E, Part 1. A-line 10 is designated for “legal and other specialist costs.
Is there a way to get a copy of the state’s return
Also, the IRS can assist you with the preparation of state tax returns and other state tax-related concerns. Everything tax-related is eligible for this deduction if the taxes are connected to your business. The same is true for any municipal taxes that you may have to pay. According to these standards, you can deduct them if you use the money for your business.
A local tax professional can provide you with information on state-level deductions for taxes prepared. For example, some states have no income tax, whereas New Hampshire will only tax profits and interest until 2025. Depending on the state, this deduction may or may not be available.
After leaving Wells Fargo Bank in 2014, Daniel began a career as a finance consultant, advising companies and individuals on economic policy, labor relations, and financial management.
At Promtfinance.com, Daniel writes about personal finance topics, value estimation, budgeting strategies, retirement planning, and portfolio diversification.
Read more on Daniel Smith's biography page.
Contact Daniel: daniel@promtfinance.com