When Are Tax Preparer Fees Deductible?
Maximize your tax savings by learning when and how tax preparation fees can be deducted based on your filing status.
Tax deductions reduce taxable income, lowering tax liability. Fees paid for professional tax preparation often raise questions about their deductibility.
Current Rules for Individuals
For most individual taxpayers, the ability to deduct tax preparation fees has changed. For tax years 2018 through 2025, these fees are not deductible. This change resulted from the Tax Cuts and Jobs Act (TCJA) of 2017.
The TCJA suspended certain miscellaneous itemized deductions that were previously subject to a 2% Adjusted Gross Income (AGI) limit. Tax preparation fees for individuals fell into this category. If you are a W-2 employee or primarily file Form 1040 (U.S. Individual Income Tax Return) without substantial business income, these fees are not deductible during this period.
This suspension applies to the cost of working with a tax professional, utilizing tax software, or paying e-filing fees for your personal return. Many itemized deductions, including personal tax preparation fees, were eliminated. Unless new legislation is enacted, these rules are set to expire at the end of 2025, potentially allowing for deductibility in future tax years.
Deductibility for Businesses and Other Entities
While personal tax preparation fees are non-deductible for individuals, exceptions exist for businesses, self-employed individuals, and certain other entities. These entities can deduct tax preparation fees as ordinary and necessary business expenses. An ordinary expense is common and accepted in your industry, and a necessary expense is helpful and appropriate for your business.
Self-employed individuals, including freelancers and independent contractors, can deduct these fees on Schedule C (Profit or Loss From Business). This includes costs for preparing business tax forms like Schedule C itself, or for professional services related to setting up books or tax advice for the business.
Rental property owners can also deduct tax preparation fees related to their rental income and expenses on Schedule E (Supplemental Income and Loss). This deduction applies specifically to the portion of the fees pertaining to the rental property, such as those for calculating depreciation or preparing Schedule E. Farmers can also deduct tax preparation fees related to their farming business on Schedule F (Profit or Loss From Farming).
Estates and trusts can also deduct tax preparation fees. These entities file Form 1041 (U.S. Income Tax Return for Estates and Trusts) and can deduct such fees as administrative expenses. It is important to allocate the fees appropriately between personal and business portions if the tax preparation covers both.
Reporting Deductible Fees
For those who qualify to deduct tax preparer fees, knowing where to report them on tax forms is essential for proper claiming. The specific location for reporting depends on the type of entity and the income source.
On Schedule C, tax preparation fees are reported as legal and professional services. These fees are entered on line 17 or line 27a, depending on the specific nature and instructions. This line is designated for fees for tax advice related to your business and for the preparation of related tax forms.
Rental property owners reporting on Schedule E will list professional fees on line 19. This line is intended for fees for tax advice and the preparation of tax forms related to your rental real estate or royalty properties. For farmers, tax preparation fees are reported on Schedule F, often under legal and professional services or other expenses.
Estates and trusts filing Form 1041 report tax preparation fees as administrative expenses. These fees are entered on line 14, labeled “Tax preparation fees.” Proper allocation and documentation of these fees are important to substantiate the deduction.