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Learn how to deduct tax preparation fees for 2024. Discover which fees are eligible for deduction, how self-employed individuals and businesses can benefit, and tips to maximize your tax refund.
When tax season rolls around, many people face the daunting task of preparing and filing their taxes. To make the process easier, some turn to tax professionals or tax preparation software. But did you know that in some cases, tax preparation fees can actually be deducted on your tax return? Although tax laws have changed over the years, it's still possible to save money on these fees, depending on your situation. In this guide, we’ll break down how tax preparation fees work, when they are deductible, and how you can make the most out of these deductions to maximize your refund.
Tax preparation fees are the costs associated with preparing and filing your tax return. These fees can include:
The short answer is: not always. In fact, since the Tax Cuts and Jobs Act (TCJA) went into effect in 2018, the deduction for tax preparation fees has been largely eliminated for individual taxpayers. Previously, these fees could be claimed as part of miscellaneous deductions, but the TCJA suspended this until 2025. However, there are still some specific cases where you can deduct tax preparation fees, particularly for businesses, self-employed individuals, and certain investments.
Let’s dive into when and how you can still take advantage of these deductions in 2024.
Unfortunately, if you’re an individual taxpayer who is not self-employed or running a business, tax preparation fees are no longer deductible through 2025. The TCJA eliminated this option for most taxpayers by suspending the miscellaneous itemized deduction category, which included tax preparation fees.
But don't be discouraged! There are other ways to reduce your tax liability, such as:
Even though the deduction for tax preparation fees may no longer be available to individuals, you can still save money by exploring these other options.
If you are self-employed, a freelancer, or a small business owner, you're in luck! Tax preparation fees for businesses are still fully deductible. Here's how it works:
If you're self-employed, you can deduct the cost of tax preparation as a business expense. This applies to anyone who reports income on a Schedule C (Profit or Loss from Business) form. The deduction includes any expenses incurred to prepare your Schedule C form as well as the costs associated with your individual tax return.
For example, if you use tax preparation software and it costs $150, you can deduct a portion of that fee related to preparing your business taxes. If 60% of your taxes are business-related, you can deduct $90 from your business expenses.
If you own a business, tax preparation fees are considered a business expense under Section 162 of the Internal Revenue Code. This means you can deduct 100% of the fees you pay to prepare your business tax return. Whether you run a sole proprietorship, LLC, S Corporation, or partnership, the deduction is available. It’s essential to keep detailed records of the fees, so you can easily claim this deduction during tax season.
Additionally, if you hire a tax professional to assist with tax planning, consulting, or filing your business tax returns, those fees are also deductible.
1) Track all tax preparation-related expenses: Save receipts and keep a log of any fees you incur during the year for preparing your taxes.
2) Record it as a business expense: When filing your taxes, make sure to include tax preparation fees as part of your business expenses on your Schedule C or your business tax return.
3) Work with a tax professional: If you're unsure about how to claim these deductions, consider hiring a tax expert who can guide you through the process and maximize your refund.
If you are an investor, you may still be able to deduct tax preparation fees under certain circumstances. For example, if you're involved in managing or maintaining rental properties or have a portfolio of taxable investments, a portion of your tax preparation fees related to those activities can be deductible.
If you own rental property, the tax preparation fees related to filing your Schedule E (Supplemental Income and Loss) form are deductible. The deduction only applies to the portion of the tax preparation fees that directly relate to your rental property income and expenses.
If you have substantial investment income, you might incur tax preparation fees related to your investments. You can deduct these fees only if they are directly related to the generation of taxable investment income, and they can be categorized as business expenses if you are actively managing your investments.
Some states may still allow deductions for tax preparation fees, even if the federal government does not. Check with your state tax authority or a tax professional to determine whether tax preparation fees are deductible at the state level. For instance, states like California and New York have separate rules for deducting expenses that are no longer deductible under federal tax law.
The actual amount you can save by deducting tax preparation fees varies based on your tax situation. If you're self-employed or a business owner, deducting tax preparation fees can lower your taxable income, reducing the overall amount of tax you owe. For instance, if your total tax preparation fees for the year amount to $500, and you're in the 24% tax bracket, you could save $120 in taxes by deducting those fees.
If you’re unsure about how to calculate the potential savings, a tax professional can help you estimate the impact of the deduction on your overall tax liability.
In addition to deducting tax preparation fees, there are other related deductions that business owners and self-employed individuals should be aware of:
1) Legal and Professional Fees: Fees paid for legal or professional advice related to your business are also deductible. This can include consultation fees for tax planning or accounting services.
2) Bookkeeping Services: If you pay for bookkeeping or accounting services to maintain your financial records throughout the year, these fees are also deductible as a business expense.
3) Software Expenses: If you purchase tax or accounting software, such as QuickBooks or FreshBooks, you can deduct the full cost of these software programs as part of your business expenses.
Proper record-keeping is essential when claiming tax preparation fees as a deduction. Make sure to:
Having detailed and organized records will make it easier to claim the deduction and provide documentation in case of an audit.
While the deduction for tax preparation fees has been eliminated for most individual taxpayers, self-employed individuals, business owners, and certain investors can still benefit from this deduction. By understanding when and how you can claim tax preparation fees, you can save money and reduce your overall tax burden.
To make sure you're maximizing your deductions and keeping up with the ever-changing tax laws, consider working with a tax professional who can provide personalized advice. And remember, if you're a business owner or freelancer, every deduction counts toward boosting your bottom line!
By keeping track of your tax preparation expenses and understanding when they qualify as deductible, you'll be better equipped to maximize your refund in 2024.
Being audited is comparable to being struck by lightning. You don't want to practice pole vaulting in a thunderstorm just because it's unlikely. Making sure your books are accurate and your taxes are filed on time is one of the best ways to keep your head down during tax season. Check out Vincere's take on tax season!
This post is just for informational purposes and is not meant to be legal, business, or tax advice. Regarding the matters discussed in this post, each individual should consult his or her own attorney, business advisor, or tax advisor. Vincere accepts no responsibility for actions taken in reliance on the information contained in this document.
For business tax planning articles, our tax resources provides valuable insights into how you can reduce your tax liability now, and in the future.
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