How to Claim the Tax Preparation Fees Deduction

Spring tax preparation continues here at LongSchaefer, even though the Coronavirus outbreak has us working a bit differently. We get a lot of calls and questions at this time of year, and one of them revolves around paying for tax preparation fees. The IRS allows you to deduct fees from your income to make your tax bill lower. In today’s blog from LongSchaefer, we explain how this works.

What You Can Deduct

Tax preparation fees come in many forms. The IRS is specific when it comes to the fees you pay to help complete your tax returns. 

You can deduct fees associated with:

  • The cost of buying tax preparation software
  • Fees for preparing a tax return through an accounting firm
  • The cost of tax-related books and publications
  • Advice on tax planning for next year
  • Legal counsel on tax issues
  • Fees for representation during the tax audit process
  • Fees for representation on tax collections procedures from the IRS
  • Legal fees for representation in a criminal tax matter

LongSchaefer’s tax experts note that you must keep receipts for these tax preparation fees to prove you actually spent the money on them. Some tax prep companies and accounting firms get their fees as part of an income tax refund, if you receive one.

Where to Take This Deduction

How you take the tax preparation fees deduction depends on your filing situation. LongSchaefer makes sure you note the deduction properly when we fill out your tax return. 

  • For a sole proprietor, fees are on Schedule C on the line for legal and professional fees. 
  • Rental income and expenses are deducted on Schedule E on the line for legal and professional fees.​
  • Farm income and expenses are deducted on Schedule F under the section for other expenses.​
  • Individual taxpayers use Schedule A, line 22, as a miscellaneous itemized deduction.

Individuals must have itemized deductions that are greater than the standard deduction to take advantage of this situation. It doesn’t matter how high or low the fee is. You could spend $50 on do-it-yourself tax preparation software for individuals or invest $1,000 in an accountant to handle your small business taxes. No matter what, the IRS counts those fees as a deduction.

How This Deduction Works

The tax preparation deduction, like any deduction, lowers the amount of income that the IRS uses to calculate your taxes. For example, you show a gross income of $150,000 as a sole proprietor of a business. You pay your accountant $500 to handle your tax preparation. The income the IRS calculates is now lowered to $149,500. 

$500 over the course of $150,000 doesn’t sound like a lot. But, every deduction counts. If you have enough deductions, you could lower your tax bracket and pay fewer taxes as a percentage of your income.

Tax Preparation Fees & LongSchaefer

LongSchaefer understands your tax situation and can pinpoint how to take advantage of deductions. Talk to our tax preparation experts if you need help navigating your income tax returns this year. Contact LongSchaefer or call (513) 245-0300 for more details.

May 2020 COVID-19 Update

In order to comply with the Ohio Health Department Order & CDC social distancing recommendations, our offices are closed until further notice. Rest assured that our established protocols and available technology will allow us to provide the same level of service and quality you expect from LongSchaefer during this time.

The SBA has announced details of how it’s helping small businesses through the Coronavirus outbreak. The IRS is sending payments to families affected by this crisis. 

Please click on our Coronavirus information pages for more information.