PROFESSIONAL SERVICES

Tax Preparation Fees Tax Deduction

Preparing your tax return can be complicated, especially if you are trying to maximize your business and personal deductions while ensuring you are in compliance with all federal and state laws. Many entrepreneurs choose to outsource their tax preparation to a professional who understands the rules and knows what landmines to avoid. Depending on how complicated your business is, tax preparation fees can be anywhere from $400 to $4,000 and beyond. Fortunately these costs are usually deductible on your Schedule C, Schedule E or other relevant business return.
‍

REAL ESTATE AGENT

Sergio Ramson is an independent real estate agent who manages his own brokerage. Last year Sergio closed a handful of complicated deals so in March he sat down with his accountant to understand the tax implications. Sergio's accountant is the best, and accordingly charged Sergio $2,800 for the tax preparation fees. Next year when he files his return for the current year he will be able to deduct the $2,800 that he paid to his accountant on line 17 of his Schedule C.

DEVELOPER / ENGINEER

Jeremy Mcduffie is a freelance developer who is organized as a single member LLC. Jeremy's accountant estimated the tax preparation fee for his Schedule C would be $1,400. While Jeremy thought this seemed high, he proceeded, deciding it would be worth it since his accountant would include the $1,400 tax preparation fee as a deduction in the returns he was preparing. When Jeremy reviewed the returns, he realized the deduction was not included. His accountant clarified that the $1,400 fee would not be deductible until the next year when it could be included on Jeremy's current year return.

UBER DRIVER / RIDESHARE

Angela has a full time job and drives for sidecar on nights and weekends. Angela is single with no children and her only sources of income last year were her full time job and her 1099 income from sidecar. Angela decided preparing her taxes herself would be simple enough so instead of hiring a professional she purchased a Turbotax license. She would be eligible to deduct the business portion of what she paid for the tax software on line 27a of her Schedule C.

LANDLORD

Florence owns a second home which she rented independently last year to tenants on a long-term basis. She used hurdlr to keep track of her all her rental income and expenses and did an excellent job separating her business expenses from her personal expenses. Because she has all the information she needs to prepare her taxes readily available for her on her hurdlr app, he accountant only charged her $250 to prepare her Schedule E, and next year she will be able to deduct the full $250 on line 10 of her Schedule E.

TASKER

On the weekends Yuri works as a handyman for hire on taskrabbit, during the week he has a full time job as a structural engineer at a big firm. Yuri has a wife, three kids, a trust, and investments in multiple real estate projects. His taxes are by no means simple. Yuri had his accountant prepare returns for everyone in his family. A few weeks later Yuri received a $2,000 itemized bill from his accountant for tax preparation fees, $400 of which were related to his tasking, the remainder were personal. When Yuri prepares his taxes next year he can deduct the $400 related to his business on line 17 of his Schedule C, and the remaining $1,600 on line 27 of his Schedule A (subject to the 2% threshold), assuming he itemizes his deductions.

WHAT TO KNOW ABOUT DEDUCTING TAX PREP FEES

You can only deduct tax preparation fees in the year you paid them. It doesn't matter if the fees were for preparation of a prior year return.
If you pay your accountant a fee on a monthly or quarterly basis to keep your books in order this would not be considered a tax preparation fee, however, it can still be deductible as a professional fee on your Schedule C or E.
If you are going to file both your business and personal tax returns with your accountant be sure to ask for an itemized bill so you can see the fee breakdown between your personal and business tax filings. You can deduct the full cost of your business tax preparation fees on your Schedule C, and a portion of your personal tax preparation costs on your Schedule A (subject to limitation). If you take the standard deduction, you will not be able to deduct any portion of your personal tax preparation fees, however, you will still be able to deduct the full cost of your business preparation costs on your Schedule C.
If you are deducting personal tax preparation fees on your Schedule A, the fees will be subject to the 2% of AGI limitation. In other words if you have an Adjusted Gross Income of $40 thousand, you can deduct up to $800 (2%) of certain miscellaneous deductions, including tax preparation fees.
Keeping your financial information in real time will minimize your tax preparation costs at the end of the year.

‍