Are Tax Preparation Fees Tax Deductible?

Tax season can be stressful for many people. Between collecting documents, understanding tax laws, and making sure everything is filed correctly, it’s no surprise that many Americans turn to professionals for help. But as you prepare your taxes, one common question comes up:

Are tax preparation fees tax deductible?

Let’s explore this topic in detail and help you understand what the IRS allows and what it doesn’t.

What Are Tax Preparation Fees?

Tax preparation fees are the costs you pay to a professional or a service that helps you file your tax return. These services can include:

• Hiring a CPA (Certified Public Accountant)
• Using a tax preparer or enrolled agent
• Paying for tax software like TurboTax, H&R Block, etc.
• E-filing fees
• Fees for related tax advice

These fees are very common, especially if your tax situation is complicated or you just want peace of mind.

Were Tax Preparation Fees Deductible?

Yes, tax preparation fees used to be tax deductible. Before 2018, if you itemized deductions on your federal tax return, you could deduct tax preparation fees as a miscellaneous itemized deduction. They were part of a group of expenses that had to exceed 2% of your adjusted gross income (AGI) to be deductible.

For example, if your AGI was $50,000, and you spent $1,500 on tax-related fees, you could deduct the portion that was more than 2% of $50,000, which is $1,000. That means only $500 of the $1,500 would be deductible.

However, all of this changed in 2018.

What Changed After 2018?

With the introduction of the Tax Cuts and Jobs Act (TCJA) in 2018, many deductions were either reduced or eliminated. One major change was that miscellaneous itemized deductions were suspended from 2018 to 2025.

This means:

You can no longer deduct tax preparation fees on your federal tax return if you are an individual taxpayer.

So, unless new laws are passed after 2025, tax preparation fees will remain non-deductible at the federal level for most people.

Are There Any Exceptions?

Yes, there are a few important exceptions where tax preparation fees might still be deductible.

Let’s look at those:

1. Self-Employed Individuals

If you’re self-employed (freelancer, contractor, small business owner), the portion of your tax preparation fees related to your business can be deductible as a business expense. You can claim it on Schedule C of your tax return.

Example: If you paid $600 for tax preparation, and $400 of that was related to your business taxes, you can deduct the $400 as a business expense.

2. Farmers

Farmers who file Schedule F may also be able to deduct tax prep fees related to farm income.

3. Rental Property Owners

If you own rental property and file Schedule E, the tax prep costs connected to the rental part of your return may be deductible.

Who Can Deduct Tax Preparation Fees?

Here is a simple table to help you understand who can and cannot deduct tax preparation fees:

What About State Taxes?

Some states may still allow tax preparation fees as a deduction, even though the federal government does not. It depends on the rules of your specific state. If you live in a state with income tax, it’s a good idea to check with a tax professional or your state’s tax agency.

What If You Use Tax Software?

If you pay for tax software like TurboTax or TaxAct and you’re self-employed, you may be able to deduct the cost related to your business portion of the filing.

Make sure to keep receipts or payment confirmations and split the fee if part of it was for personal tax filing and the other part was for business.

Best Practices to Maximize Deductions

Here are a few tips to help you make the most out of your situation:

1. Keep detailed records: Always save receipts and documentation of what you paid for tax preparation.
2. Split personal and business costs: If you’re partly self-employed, only deduct the portion related to your business.
3. Use a professional: A CPA or tax advisor can help ensure you’re following current laws and not missing out on any deductions you do qualify for.
4. Check state laws: Your state might offer deductions the IRS does not.

Summary

Tax preparation fees are NOT tax deductible for most people right now (from 2018 to 2025) due to the Tax Cuts and Jobs Act.

But if you’re self-employed, own a farm, have rental property, or run a business, you may still deduct those fees as business expenses on your tax return.

Final Thoughts

Tax laws can be confusing, but understanding what’s deductible and what’s not can help you make better decisions. If you pay someone to prepare your taxes, you might think it’s only fair to get a deduction—but under current federal rules, that’s not the case for most people.

However, if you have business or rental income, you may still benefit. Keep good records, and always ask a tax professional if you’re unsure.

Also Read:

What Do Tax Preparers Do in the Off-Season?

Frequently Asked Questions