Preparing your taxes, whether you do it yourself or hire a professional, takes a lot of time and, in some cases, money! Because of this, the IRS historically allowed taxpayers to deduct various costs that were associated with preparing their tax returns.
Unfortunately, the tax break vanished for the majority since 2018 after the Tax Cuts and Jobs Act or TCJA. So, can you still claim the tax preparation fees deduction? Let’s break down the answer to this question and more now.
Who Can Currently Deduct Fees?
At the time of this writing, the TCJA is still in effect. That means only self-employed individuals, such as freelancers and business owners, are able to claim the deduction for tax prep fees until 2025.
For example, if you are a business owner and a sole proprietor, you can take the deduction and claim it on Schedule C of your tax return forms.
Statutory employees may also claim the tax prep deduction on Schedule C, as statutory employees are independent contractors in all but name (though businesses can treat them as employees for certain tax advantages). Examples of statutory employees include:
- Local or traveling salespersons
- Remote workers for organizations
- Delivery drivers who get commissions
- Drivers who distribute beverages or foods aside from milk and who are paid based on commission
- Life insurance agents
- Freelance workers like graphic designers hired by companies to do graphic design work
If you’re not sure whether your work counts as “statutory employment,” a knowledgeable and professional tax prep specialist may be able to assist.
Note that this paradigm may change after 2025 if Congress chooses not to renew the legislation from the TCJA. In that case, the majority of taxpayers may once again be able to claim the tax prep fees deduction.
Tax Cuts and Jobs Act: Tax Rule Changes
Unfortunately, all W-2 employees are not allowed to deduct the costs for preparing their tax returns if they also file a standard deduction (something that the majority of people do). This wasn’t true until 2017, up until which anyone could deduct the prior year’s tax preparation costs from the current year’s tax return.
Things changed in 2017 when the Tax Cuts and Jobs Act was passed and signed, which changed many aspects of the US tax code. For example, it increased the amount of the standard deduction, theoretically allowing taxpayers to save more on their taxes. But it also eliminated lots of the line item or individual deductions that people could take, including the individual deduction for personal tax preparation.
What Types of Self-Employed Individuals Could Now Deduct Fees?
So, if only self-employed individuals and certain statutory employees can deduct tax prep fees, what kinds of self-employed individuals and business owners can take full advantage of this deduction?
According to the TCJA, through 2025, any self-employed business owner can deduct tax prep fees as “ordinary and necessary” business expenses. Eligible self-employed workers and business owners include:
- Sole proprietorship’s who choose to file Schedule C Form 1040 OR Form 1040-R
- Business owners who run businesses classified as LLCs/limited liability corporations, partnerships, or S corporations
- Independent farmers who file Schedule F forms
- Any individuals who receive income from royalties, rental property income, or other income that must be reported when filing Schedule E
- Independent contractors and statutory employees, as mentioned above
What Specific Fees Are Deductible?
Just because you may be able to deduct some tax prep fees doesn’t mean you can automatically deduct all tax prep fees. Typically, the IRS allows you to deduct expenses, including the following:
- Any fees incurred from using an accountant or tax preparation specialist. These fees include fees from general meetings and from the costs of tax return preparation itself
- The cost of tax prep software programs, like TurboTax
- The fees accumulated for electronically filing/e-filing your tax return, including associated credit card fees
- Any other legal fees and audit representation (if your business is audited by the IRS, for instance)
In addition, you are usually allowed to deduct any legal and/or professional fees related to your business on the Schedule C form. Note that you can’t deduct the legal fees you pay to purchase or otherwise acquire business assets like equipment or real estate.
It’s also crucial to note that you may not be able to deduct the entire tax prep expense. For instance, if an accountant charges you $500 to prep your tax return, but you only claim the part of the fee that can be treated to preparing your Schedule C, E, or F forms. Remember, the tax prep deduction only applies to the business portion of your taxes, not the other aspects of your tax return, such as the forms focusing on your personal taxes.
Again, you may wish to work with a tax prep specialist in any case to ensure that you deduct as much as possible but don’t deduct tax fees that don’t qualify under the tax prep deduction rules.
How To Claim The Deduction
Now that you know if you can claim this deduction – and how much you can deduct – it’s time to break down how to deduct tax preparation fees. Only complete these steps as they pertain to your business or work arrangements (for example, skip the Schedule F step if you aren’t a farmer).
Begin this deduction by cleaning it on Schedule C. Tax prep fees are classified as “legal and professional services” on the Schedule C form. You can find this on Line 17 in Part II of Schedule C, under the label “Expenses.” Note that this section can also encompass any other money you might need to spend to resolve tax disputes with the IRS, like the above-mentioned legal or audit representation fees.
Next, you can claim the tax prep deduction on Schedule F: “Profit or Loss from Farming.” These tax prep fees technically qualify as “other expenses” on Schedule F; you can find them on Lines 27. For this part of the deduction, you’ll need to break down the expenses, and what they were for on the lettered lines you see, such as office expenses, tax prep fees, tax software, and so on. Remember, all of these tax costs have to directly relate to a farming business that you own and operate.
Last, claim the deduction on Schedule E, “Supplemental Income and Loss.” This covers many different tax situations and entities, like income from renting real estate or collecting book royalties. You are able to deduct the costs from tax return prep that relates to these income sources.
This can be a little difficult if you’re a landlord but have lived in or otherwise used your properties in a personal context during the tax year. You’ll have to try to itemize and deduct the expenses that relate to your business, not that relate to your own personal expenditures or living needs. Furthermore, you must have rented a property at fair market value for the income from that property to be subject to the tax prep deduction rules.
What Do I Need For Proof To Claim The Deduction
For this deduction and all others, the IRS legally requires all taxpayers to have documentary evidence on hand to support their reported expenses. In the majority of cases, you will not need to use this evidence; the IRS doesn’t have the time or the manpower to investigate all deduction claims.
However, you could eventually find yourself on the unlucky end of an IRS audit. If that happens, you need the documentation on hand proving that your deductions were legal and necessary. Otherwise, you could find yourself subject to unnecessary and unfortunate fees.
“Documentary evidence” includes any reasonably compelling or convincing evidence that proves:
- You made a claimed transaction
- The transaction was in the claimed amount
- The transaction was for the purposes stated
For example, say that you want to claim the fees for using tax preparation software to prepare tax forms for your freelance writing business. In that case, you should keep the receipt for your tax preparation software and file it with the rest of your tax paperwork or documentation.
If you are ever audited by the IRS, you can produce that receipt and prove that you purchased the tax software in the year in which you claimed the deduction. That should suffice to prove that you used the software for your tax prep that year.
But what if you don’t have a receipt or other documentary evidence? If you are audited, you can provide supplementary or alternative evidence such as:
- Credit or debit card statements
- Canceled checks
- Screenshots or emails
- Anything else you can think of
In the end, it just has to be producible to the IRS in some way, shape, or form. The IRS will not take your word as the sole proof that you both made and required a certain expense.
As you can see, you can deduct many of the expenses related to preparing your business taxes if you are a self-employed individual or statutory employee. In the future, many more Americans may be able to take this deduction as well, and potentially alongside the standard deduction!
If you are able to take this tax prep fees deduction, be sure to do so carefully and to make sure that you only deduct the fees that are related to your business taxes, not your personal taxes. Furthermore, don’t forget to keep documentary evidence of all the claims you make for your tax deductions just in case you are ever audited.
If you’re not self-employed, take heart; you can always still take the standard deduction, which will help minimize how much you pay in taxes every year by reducing your adjusted gross income.
Josh is a financial expert with over 15 years of experience on Wall Street as a senior market strategist and trader. His career has spanned from working on the New York Stock Exchange floor to investment management and portfolio trading at Citibank, Chicago Trading Company, and Flow Traders.
Josh graduated from Cornell University with a degree from the Dyson School of Applied Economics & Management at the SC Johnson College of Business. He has held multiple professional licenses during his career, including FINRA Series 3, 7, 24, 55, Nasdaq OMX, Xetra & Eurex (German), and SIX (Swiss) trading licenses. Josh served as a senior trader and strategist, business partner, and head of futures in his former roles on Wall Street.
Josh's work and authoritative advice have appeared in major publications like Nasdaq, Forbes, The Sun, Yahoo! Finance, CBS News, Fortune, The Street, MSN Money, and Go Banking Rates. Josh currently holds areas of expertise in investing, wealth management, capital markets, taxes, real estate, cryptocurrencies, and personal finance.
Josh currently runs a wealth management business and investment firm. Additionally, he is the founder and CEO of Top Dollar, where he teaches others how to build 6-figure passive income with smart money strategies that he uses professionally.