Can You Write Off CPA Fees on Your Tax Return?

CPA fees cover professional services from Certified Public Accountants, including tax preparation, financial planning, auditing, bookkeeping, and business consulting. CPAs offer expertise in interpreting financial data and navigating complex tax laws to optimize financial strategies and ensure compliance. Individuals and business owners often inquire whether these fees are tax deductible, potentially reducing their overall tax liability. The deductibility of CPA fees varies significantly depending on the nature of the services received and the tax classification of the entity or individual paying them.

CPA Fees for Businesses

Businesses can generally deduct CPA fees as ordinary and necessary business expenses. An “ordinary” expense is one that is common and accepted in a particular industry, while a “necessary” expense is helpful and appropriate for the business, though not necessarily indispensable.

For sole proprietorships, tax preparation fees and other professional services related to the business are deductible on Schedule C (Form 1040), Profit or Loss from Business. This includes costs for preparing the business portion of the tax return, bookkeeping, and general financial advice for the business. Similarly, partnerships report deductible CPA fees on Form 1065, U.S. Return of Partnership Income, as professional service expenses.

S-corporations and C-corporations also deduct CPA fees as professional service expenses. For S-corporations, these fees help maintain compliance and manage finances. The cost of preparing corporate tax returns, such as Form 1120 for C-corporations, is also a deductible business expense. Fees for ongoing services like monthly bookkeeping, financial planning, or general business advice are also deductible as professional service deductions.

CPA Fees for Individuals

For individuals, the deductibility of CPA fees has changed significantly under current tax law. The Tax Cuts and Jobs Act (TCJA) of 2017 eliminated miscellaneous itemized deductions subject to the 2% adjusted gross income (AGI) limit for tax years 2018 through 2025. This means that most personal tax preparation fees, including those for preparing a standard Form 1040 or for general investment advisory services, are no longer deductible for W-2 employees.

There are specific, limited scenarios, however, where individuals can still deduct CPA fees. Fees related to tax advice or preparation for income reported on Schedule C (Profit or Loss from Business) remain deductible, as these are considered business expenses. Similarly, individuals can deduct CPA fees tied to income reported on Schedule E (Supplemental Income and Loss), such as rental property income. These deductions apply to the portion of the fees directly related to the income-generating activity, rather than personal tax matters. Additionally, fees for tax advice related to trusts or estates may still be deductible under certain conditions, as these can be considered necessary for the administration of the trust or estate.

Reporting Deductible CPA Fees

The method for reporting deductible CPA fees on tax forms depends on the type of taxpayer and the nature of the expense. Sole proprietors, including self-employed individuals and independent contractors, report business-related CPA fees on Schedule C (Form 1040), specifically on Line 17, which is designated for legal and professional services.

Partnerships report professional fees on Form 1065, U.S. Return of Partnership Income. Corporations, including both S-corporations and C-corporations, typically report these expenses on their respective income tax returns, such as Form 1120-S for S-corporations or Form 1120 for C-corporations, usually under a line item for professional services or similar expenses. For individuals who qualify for deductions related to specific income-generating activities, such as rental properties, the relevant portion of CPA fees would be reported on Schedule E (Form 1040).

Documentation for CPA Fee Deductions

Maintaining thorough and accurate records is important for substantiating any claimed tax deductions, including CPA fees. The Internal Revenue Service (IRS) requires taxpayers to keep records for as long as needed to prove the income or deductions reported on a tax return. This typically means retaining documents for at least three years from the date the return was filed, though some situations may require a longer retention period, such as six or seven years.

Specific documentation to keep includes invoices from the CPA firm that clearly itemize the services rendered, distinguishing between deductible and non-deductible services if both were provided. Proof of payment, such as bank statements, credit card statements, or canceled checks, should also be retained to confirm the expense was incurred. Any engagement letters or contracts outlining the scope of services and fee arrangements can further support the deduction. These records help verify the legitimacy of deductions in case of an IRS inquiry or audit.