Are Tax Preparation Fees Deductible?

When tax season comes around, many people hire professionals or use software to help file their tax returns. These services usually charge a fee, and a common question people have is: Are tax preparation fees deductible? We will explain what tax preparation fees are, whether they can be deducted, and what you need to know to avoid confusion.

What Are Tax Preparation Fees?

Tax preparation fees are the costs you pay to have your taxes prepared. This can include:

• Paying an accountant or tax professional
• Buying tax software like TurboTax or H&R Block
• Paying for e-filing services
• Consulting fees for tax advice

Some people pay hundreds of dollars for these services, especially if they have a complex return. Because of this, it’s natural to wonder if you can deduct these expenses to reduce your tax bill.

Were Tax Preparation Fees Deductible Before?

Yes, before 2018, taxpayers could deduct tax preparation fees. These fees were listed under miscellaneous itemized deductions on Schedule A of your tax return. However, they were subject to a 2% rule. This means that you could only deduct the amount of expenses that exceeded 2% of your adjusted gross income (AGI).

For example, if your AGI was $50,000, you could only deduct expenses over $1,000. So if your tax preparation cost was $1,500, you could deduct $500.

What Changed After 2018?

The rules changed with the Tax Cuts and Jobs Act (TCJA), which went into effect in 2018. One of the main changes was the elimination of miscellaneous itemized deductions, which included tax preparation fees.

So, starting with the 2018 tax year, most individuals can no longer deduct the cost of preparing their taxes. This change will stay in effect until 2025 unless the law is changed.

Are There Any Exceptions?

Yes, there are a few exceptions where tax preparation fees may still be deductible:

1. Self-Employed Individuals

If you are self-employed, a freelancer, or a small business owner, you may be able to deduct tax preparation fees as a business expense. This applies only to the portion of the fee related to your business taxes, not your personal taxes.

For example, if a tax preparer charges you $600 to prepare both personal and business returns, and $400 of that was for the business part, you may be able to deduct the $400.

2. Farmers

Farmers can also deduct tax preparation fees related to farming income. These are considered business-related expenses.

3. Rental Property Owners

If you own rental properties and report that income on Schedule E, you may deduct the part of tax preparation fees that applies to the rental activity.

Who Can Deduct and Who Cannot

Here is a helpful table to show who can and cannot deduct tax preparation fees:

What About Tax Software or Online Tools?

Many people use online software to file taxes. These services often come with extra features like audit protection or state returns that cost money.

If you are self-employed, and you use tax software to prepare your Schedule C (profit or loss from business), then that portion of the software cost might be deductible as a business expense.

But again, regular taxpayers using tax software for personal returns cannot deduct the cost of these tools.

How To Claim Deductible Tax Preparation Fees

If you qualify under one of the exceptions, here’s how to claim it:

1. Keep Records: Save the receipt or invoice from your tax preparer. If the fees are mixed (personal and business), ask for a breakdown.
2. Use the Correct Form:
   • For business owners: Claim on Schedule C
   • For farmers: Use Schedule F
   • For rental income: Use Schedule E
3. Separate Personal and Business Portions: Only the business-related part is deductible.

Tips to Save Money on Tax Preparation

Even though most people can’t deduct the fees, here are a few ways to reduce costs:

• Use IRS Free File (available if your income is below a certain level)
• Compare different software options to find the most affordable
• Ask your tax preparer for discounts, especially if you’re a returning client
• Learn simple tax rules yourself to reduce your need for help

You can also visit the Tax Deductions to learn more about how deductions work in general.

Will the Deduction Ever Come Back?

There is a chance. The TCJA changes are set to expire after 2025, unless extended by Congress. If no new laws are passed, miscellaneous itemized deductions (including tax prep fees) might return in 2026.

You can follow updates on Tax Cuts and Jobs Act to keep track of changes.

Key Takeaways

• Tax preparation fees are not deductible for most individuals after 2018.
• Self-employed individuals, farmers, and rental property owners may still deduct fees related to their business or rental activity.
• Always keep clear records and consult a tax advisor if you are unsure.
• The rules might change again after 2025, so stay informed.

Final Thoughts

Understanding whether tax preparation fees are deductible can save you from making mistakes when filing your taxes. While most people can’t deduct them anymore, business owners and some special cases still can. The most important step is to know your category and track your expenses properly.

If you handle any kind of income beyond a salary—like freelancing or renting property—talk to a tax professional to find out exactly what you can deduct. Staying informed helps you make better financial decisions and possibly save money in the long run.

Also Read:

• What Do Tax Preparers Do in the Off-Season?
• Are Tax Preparation Fees Tax Deductible?

Frequently Asked Questions