Many taxpayers feel uncertain whether they can deduct tax preparation fees when they hire a tax professional or use tax software. This confusion worsened after changes in tax law altered deductions for tax and itemized tax breaks. According to current rules, preparation fees are not deductible on most personal returns under the Tax Cuts and Jobs Act. Because the TCJA (Tax Cuts and Jobs Act) suspended miscellaneous itemized deductions, millions lost the ability to claim personal tax preparation fees. However, business tax preparation fees remain deductible when tied to self-employment, rental, or farm income. This article offers a complete guide showing when you can deduct your tax preparation fees, how to allocate them, and how to report them.
The Basics of Tax Preparation Fees
A tax preparation fee represents the cost of tax preparation services paid to a tax preparer or tax professional. It includes tax advice, e-filing fees, and legal fees related to personal tax preparation or business tax returns. Additionally, the fees paid for tax preparation software and CPA fees are part of this expense.
Generally, self-employed individuals and small business owners categorize these as business expenses under the tax law. However, for a personal tax return, such fees related to tax filing are no longer deductible. Hence, the portion of your tax spent on professional services must be classified carefully.
Are Tax Preparation Fees Deductible?
Tax preparation fees are partly deductible depending on your filing status and tax year. Before the Tax Cuts and Jobs Act, they were claimed as a miscellaneous itemized deduction on Form 1040. However, these deductible expenses for individuals are no longer available through 2025. Conversely, self-employed individuals, rental property owners, and small businesses can still deduct tax preparation fees under Schedule C, Schedule E, or Schedule F.
The business portion of tax preparation fees related to business tax remains deductible because it directly reduces tax liability. Therefore, hiring a tax professional remains financially beneficial for business owners seeking legitimate tax deductions.
How Much Can You Deduct for Tax Preparation Fees:
Self-employed taxpayers can deduct 100% of their tax preparation fees linked to business income on Schedule C. Rental property owners may deduct 100% on Schedule E, while farmers can claim the same on Schedule F. Individuals, however, can deduct 0% because personal tax prep fees are no longer deductible.
For more detailed guidance on calculating deductions and tax liability, check our full guide on average tax rate formula for additional tax help
Common Fee Structures for Tax Preparation Services:
| Fee Structure Type | Description | Typical Usage |
|---|---|---|
| Hourly Rate | Charged according to the time a tax preparer or CPA spends completing your return. | Common for complex or uncertain filings. |
| Flat Fee | A single, fixed charge for completing an entire tax return, regardless of time taken. | Best for straightforward or routine returns. |
| Per Form or Schedule | Each form or schedule (like Schedule C or E) adds to the total cost. | Typical for self-employed or rental property filers. |
| Percentage of Refund | Fee calculated as a portion of the tax refund amount received. | Rare and often discouraged due to ethical issues. |
| Additional Services | Extra charges for tax planning, audit support, or consultation beyond return filing. | Used for ongoing business or advisory needs. |
When Are You Able to Deduct Tax Prep Fees?
You can deduct your tax preparation fees when they are directly connected to business tax returns or rental property income. The portion of your tax preparation linked to personal filing is not deductible. Therefore, only business-related portions of preparation fees are deductible as business expenses under the current tax code.
Individual taxpayers vs. business tax filers
| Category | Deductibility Status | Applicable Forms / Schedules | Notes |
|---|---|---|---|
| Individual Taxpayers | Cannot deduct personal tax preparation fees | Form 1040 | Covered under standard tax rules; itemized tax breaks suspended. |
| Business Tax Filers | Preparation fees deductible for businesses | Schedule C, E, or F | Only business-related portion of your tax is fees tax deductible. |
Who Can Deduct Tax Preparation Fees
- Self-employed individuals filing Schedule C may deduct these fees as a business expense.
- Rental property owners can deduct the full amount on Schedule E.
- Farmers reporting income under Schedule F can write off tax preparation costs.
- Corporations and partnerships may deduct accountant fees under business tax preparation fees.
- Those using tax software for business-related returns can also deduct a portion of these fees.
- Individuals filing personal returns generally cannot deduct such preparation fees anymore.
Small Business and Business Owner Eligibility
Small business tax preparation expenses remain deductible because they are directly tied to generating taxable income. Accordingly, business owners can deduct tax prep fees listed under fees as a business expense, which may include professional tax consultations or accountant fees. This deduction is available when the preparation fees clearly relate to business operations, tax forms, or federal tax obligations.
Furthermore, small business owners who hire a tax professional or use tax software for filing may claim tax prep fee deductions. However, they must separate the business-related portion of your tax from personal filings. Therefore, only the deductible business part qualifies under current tax law.
FAQs About Tax Prep Fees
1. Are tax preparation fees deductible on personal federal returns?
No, personal tax preparation fees cannot be deducted under current federal law.
2. Can I deduct tax prep fees if I’m self-employed?
Yes, you may deduct tax prep fee deductions as a business expense on Schedule C.
3. Are CPA or accountant fees tax deductible?
Yes, when they relate to business tax preparation fees, those costs are deductible.
4. Can I deduct fees for tax software?
Yes, if the software is used for your business tax preparation, it qualifies.
5. What portion of your tax prep fees is deductible?
Only the business-related portion is deductible; personal portions aren’t.
