Can You Write Off Tax Preparation Fees

Tax season is always stressful, particularly when you are paying a professional to assist you. If you are either thinking about hiring a CPA, purchasing tax software, or even paying someone to do your bookkeeping, then you may be asking yourself: Can I deduct tax preparation fees on my taxes?

It is not as straightforward as yes or no. The IRS regulations have evolved with time and several deductions that were once available to people are no longer possible. Nevertheless, there are still taxpayers, particularly business owners, who can benefit.

This guide simplifies it all so that you know what applies to you.

Are Tax Preparation Fees Deductible for Individuals?

The Short Answer: Usually No

For most people who prepare individual tax returns (Form 1040), the cost of preparing taxes is not deductible. 

This includes:

• Compensating a CPA or tax professional
• Buying tax programs such as TurboTax or H&R Block
• Electronic filing fees
• Tax advice fees pertaining to personal income

Why You Can’t Deduct Them Anymore?

Until 2018, tax preparation fees were included as an itemized deduction (miscellaneous). They were allowable when your total miscellaneous allowance was more than 2 percent of your Adjusted Gross Income (AGI).

When the Tax Cuts and Jobs Act (TCJA) became effective in the 2018 tax year, however, it did not allow these deductions until 2026.

This means individual taxpayers are not allowed to deduct such fees anymore unless the law is changed or the suspension is removed.

Exceptions: Who Can Deduct Tax Preparation Fees?

The personal tax prep fees are not deductible, but still some groups are entitled to the deduction. It is at this point that most taxpayers lose out, particularly business owners, freelancers, and landlords.

Self-Employed Individuals (Schedule C)

In the case of a freelancer, independent contractor, or small business owner, you are allowed to deduct the amount of tax preparation expenses you incurred in preparing your business income.

This includes:

• Tax prep for Schedule C
• Bookkeeping service fees
• Business tax advice
• Program to create business sections of your return

Example:

For someone who pays a tax professional $600 to prepare both their personal and business taxes, but half of the work is for his/her business, then that person can claim $300 of the amount on Schedule C.

Rental Property Owners (Schedule E)

Landlords who report rental income are allowed to deduct tax preparation fees on preparing Schedule E.

This also includes:

• Rental property income or expense advice
• Rental operation bookkeeping

Farmers (Schedule F)

Farm income taxpayers are allowed to deduct tax preparation expenses incurred in preparing Schedule F.

Investors With Business Income (Not Passive Investors)

If you increase your investment activity to the level of a trade or a business, tax preparation expenses, involving your business activity, may be deductible.

Passive investors are not allowed to deduct these fees in the TCJA suspension.

What Types of Fees Are Deductible for Businesses?

The preparation of business-related tax returns is usually deductible as an ordinary and necessary business expense.

The deductible expenses can be:

• Business schedules (C, E, or F) preparation

• Tax planning on a business
• Bookkeeping or accounting services
• Depreciation schedules
• Business taxes filing charges
• Business accounting or tax filing software

Not deductible for business:

• How to prepare your personal 1040
• Advice about personal taxes
• Commissioned fees based on personal deductions or credits

If your tax professional prepares one invoice to prepare both personal and business, request them to separate the business portion. This simplifies documentation and safeguards you during an audit.

How to Claim a Deduction for Tax Preparation Fees

The way you deduct the fees depends on your type of income.

For Schedule C (Self-Employment)

Tax prep fees will be included in Schedule C under Legal and professional services.

For Schedule E (Rental Income)

You include deductible fees as one of the costs of operating your rental property.

For Schedule F (Farm Income)

The charges are classified as other expenses or the relevant category.

When you use software such as TurboTax or a CPA, they will normally do this automatically provided you indicate that you have business, rental, or farm income.

Can You Deduct Fees for Tax Software?

Yes–but only on the business side.

If you purchase software and you use it both for personal and business income:

• Divide the expense into business and personal usage
• Subtract business on your business schedule

As an illustration, when your tax program is worth $100 and you use 40 percent of it to create your Schedule C, then you can deduct $40.

Can You Deduct Fees for Audit Protection or Identity Theft Services?

Once again, the amount based on your business can be deductible.

To individuals, protection of audits or identity theft protection bought via your tax software is viewed as a personal cost and is not deductible at the time of TCJA suspension.

Are State Taxes Different?

Although the deductions in federal taxes have been suspended to individuals, in some states, tax preparation fee deductions are still permitted.

This varies by state. When you claim deductions on your state filing, refer to the regulations of your state or consult a tax professional.

Will the Deduction Come Back After 2025?

Miscellaneous itemized deductions are to be suspended and will resume after the 2025 tax year, unless Congress renews them or enacts new reforms.

If the rules return to pre-2018 law:

• Individuals would again be deductible in terms of tax prep fees
• They would be subject to 2 percent AGI

It remains unclear at this moment whether the deduction will be reinstated or not.

Practical Tips to Maximize Your Tax Savings

The following are some tips to ensure the maximum use of existing rules:

Separate Business and Personal Fees

Request your tax preparer to segregate business-related charges on your invoice.

Keep Detailed Documentation

If you are self-employed or have rental property, keep:

• Receipts
• Invoices
• Notes about the business portion of tax software.

Track Year-Round Accounting Costs

Bookkeeping and accounting charges also qualify as deductions and are usually more than the tax preparation charges themselves.

Use Business-Only Software if Possible

This eliminates the necessity of having to separate personal and business usage.