Can Tax Preparation Fees Be Deducted?

Tax preparation fees represent the costs incurred when seeking professional assistance to prepare and file tax returns. This can include services from accountants, tax advisors, or even the purchase of tax software. The question of whether these fees can be deducted on a tax return is common, and the answer depends significantly on the taxpayer’s situation and the nature of the income involved.

Deductibility for Individuals

The Tax Cuts and Jobs Act (TCJA) of 2017 suspended most miscellaneous itemized deductions for tax years 2018 through 2025. As a result, individuals generally cannot deduct the cost of preparing their personal tax returns on Schedule A during this period.

Despite this general rule, there are specific exceptions for individuals who have business or income-producing activities. If the tax preparation fees are related to income reported on Schedule C (Profit or Loss from Business), Schedule E (Supplemental Income and Loss for rental real estate, royalties, partnerships, or S corporations), or Schedule F (Profit or Loss from Farming), these expenses can generally be deducted. These deductions are considered ordinary and necessary business expenses and are typically deducted directly against the related income, rather than as an itemized deduction. This distinction is important because it means the fees reduce the taxable income from these activities before calculating the individual’s overall tax liability.

Deductibility for Businesses and Other Entities

Businesses and other income-producing entities can generally deduct tax preparation fees. These are considered ordinary and necessary business expenses. This applies to various business structures, including sole proprietorships, partnerships, S corporations, and C corporations. The types of services covered include preparing business income tax returns, payroll tax returns, and sales tax returns.

For sole proprietorships, these fees are typically deducted on Schedule C, directly reducing their business income. Other entities deduct these expenses on their respective business tax returns. For instance, C corporations report these deductions on Form 1120, while partnerships use Form 1065. The deductibility extends to fees paid for tax advice and assistance with tax issues related to the business.

Claiming Deductible Fees

When tax preparation fees are deductible, the method of reporting them depends on the type of income or entity involved. For individuals with deductible business-related fees, these are reported on the specific schedules where the income is generated. For example, sole proprietors report tax preparation fees on Line 17 of Schedule C. Fees related to rental income or royalties are generally deducted on Schedule E, and farm income expenses are reported on Schedule F.

For businesses, these expenses are listed in the deduction sections of their tax forms. Corporations report them on Form 1120, and partnerships include them on Form 1065. Maintaining thorough records is important. Keep invoices, receipts, and other documentation from your tax preparer or tax software purchases. These records support the claimed deductions in case of an IRS inquiry or audit.