Individuals can deduct the cost of hiring a tax professional to prepare their tax returns. This also includes the cost of tax planning advice, representation in a tax-related audit, collections and/or criminal investigations. Individual taxpayers can deduct their professional tax preparation fees as a miscellaneous itemized deduction on their Schedule A. Business taxpayers also deduct their professional tax preparation fees as a business expense on the tax forms relevant to the business.
What Types of Fees Can Be Deducted
- Fees for preparing a tax return
- Advice on tax planning
- Legal counsel on tax issues
- Legal fees for representation in a criminal tax matter
- Fees for representation in a tax audit
- Fees for representation on tax collections
- The cost of tax preparation software
- The cost of tax-related books and other publications
When to Deduct Tax Preparation Fees
Fees for professional tax preparation are deducted in the same year the fee is paid. So, fees paid in 2013 for preparing your 2012 tax return are deducted on your 2013 tax return, since that was the year the fee was paid.
Where to Deduct Tax Preparation Fees
The following quotation from IRS Publication 529 provides a clue into how tax preparation fees are reported on the tax return:
"Deduct expenses of preparing tax schedules relating to profit or loss from business (Schedule C or C-EZ), rentals or royalties (Schedule E), or farm income and expenses (Schedule F) on the appropriate schedule. Deduct expenses of preparing the remainder of the return on Schedule A (Form 1040), line 22, or Form 1040NR, Schedule A, line 8."
In other words, for a personal income tax return, professional tax preparation fees can be deducted in the following places:
- Tax preparation fees related to preparing a sole proprietor's Schedule C are deducted on Schedule C on the line for legal and professional fees.
- Tax preparation fees related to preparing Schedule E for rental income and expenses are deducted on Schedule E on the line for legal and professional fees.
- Tax preparation fees related to preparing Schedule F for farm income and expenses are deducted on Schedule F under the section for other expenses.
- Tax preparations fees related to other parts of the tax return are deducted on Schedule A on line 22 as a miscellaneous itemized deduction.
Relevant Tax Laws on Deducting Tax Preparation Fees
Internal Revenue Code section 212 permits the deduction of tax preparation fees. That Code section says,
"In the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year ... in connection with the determination, collection, or refund of any tax."
In the Treasury Regulations section 1.212-1, paragraph l, provides further guidance. This part of the Treasury Regulations says,
"Expenses paid or incurred by an individual in connection with the determination, collection, or refund of any tax, whether the taxing authority be Federal, State, or municipal, and whether the tax be income, estate, gift, property, or any other tax, are deductible. Thus, expenses paid or incurred by a taxpayer for tax counsel or expenses paid or incurred in connection with the preparation of his tax returns or in connection with any proceedings involved in determining the extent of his tax liability or in contesting his tax liability are deductible."