Can You Deduct Tax Preparation Fees?

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As the 2022 tax filing season gets underway, there are some looming questions about tax laws and returns on the horizon.

In order to bring down owed taxes — or get as much of a refund as possible — many Americans are looking into what deductions are feasible for filing taxes this year. One common question concerns whether or not you can deduct any fees for tax preparation.

Though there are free ways to file taxes, some people turn to CPAs or tax prep agencies in order to help process their returns. This is particularly true for filers who expect to employ a lot of deductions via itemization, or for those who hold complicated investment balance sheets. Given that most professional tax advice and prep is an expense related directly to tax filing, it would be natural to think such services could be claimed as a deduction.

But the truth is, only those who are self-employed can claim such expenses — and even then, only in very specific circumstances. This is a relatively recent policy (enacted in 2018, and will be in effect through 2025) coming about as a result of the Tax Cuts and Jobs Act (TCJA) Congress passed in Dec. 2017.

“Prior to 2018, taxpayers who weren’t self-employed were allowed to claim tax prep fees as a 2% miscellaneous deduction. However, few taxpayers were able to take advantage of this deduction due to the restrictive conditions of the 2% rule,” per Intuit.

However, Carson Thorn, CPA, noted that there is an upside to Congress passing the TCJA — even though you can no longer deduct some miscellaneous items like tax prep fees, “the upside to losing many of these itemized deductions is that the legislation did increase the standard deduction, so most people came out ahead.”

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Thorn added that the only people currently allowed to deduct the fees include:

  • A sole proprietor or independent contractor who files a schedule C with their return.
  • A farmer who files schedule F.
  • A landlord who earns income from rental properties and files schedule E.
  • An individual who earns income from royalties and files a schedule E.

Further, said individuals can only claim the proportion of tax prep-related expenses which are related to their business, per Thorn: “You can only claim the amount of the fee that was accrued by preparing the business portion of your taxes. The rest, including the standard deduction, personal deductions, and credits fall into personal expense.”

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