Can you Deduct your Fees for Filing Taxes?

in Tax Deductions


Generally speaking, the Internal Revenue Service (IRS) does allow tax payers to deduct the costs associated with their tax preparation as a miscellaneous deduction on Schedule A (Itemized Deductions) of the form 1040. However, as is the case with most things related to tax deductions, this deduction does have specific limitations and restrictions. Further, there are new changes that have been introduced for the 2009 tax year that may deny you this deduction.

Deductions related to your tax preparation may include any money paid for reasonable and ordinary expenses related to preparing your taxes. These may include, but are not limited to: the cost of tax preparation software; fees paid to a professional tax preparer, planner, or attorney; electronic filing of your return; publications and reports purchased to aid in calculating your taxes; and expenses related to traveling to your tax professional’s office. Basically, any expense paid for the “determination, collection or refund” of federal, state, or local taxes can be deducted as a miscellaneous expense.

As is the case with all itemized deductions, in order to claim your tax preparation expenses you have to file the standard Form 1040 along with Schedule A. Further, you have to be able to substantiate your deductions; which means keeping your receipts and other evidence of the expenses you are claiming a deduction for. Further, in 2009 there is a new change which restricts the number of miscellaneous deductions that can be claimed by people that have an adjusted gross income (AGI) of $166,800 or more (or $83,400 if married filing separately). To see if your miscellaneous deductions are restricted under this new policy, the IRS provides a worksheet in the Schedule A instructions – related to Line 29 – which can be filled out to see if you can claim miscellaneous deductions in 2009.

Further complicating the picture is the fact that most miscellaneous deductions – including tax preparation expenses – are subject to an exclusion that is equal to two percent of the taxpayer’s AGI. That is, if the deduction does not equal or exceed two percent of the taxpayers AGI, it cannot be claimed and only the amount that does exceed two percent can be deducted. For example, if you have an AGI of $50,000, you could only claim tax preparation expenses that exceed two percent of the AGI, or those that exceed $1,000. Although this two percent exclusion does not apply to all miscellaneous expenses, it does apply to tax preparation expenses. One final complication is that only the expenses related to your personal tax preparation can be claimed on Schedule A; tax preparation fees related to other entities (businesses, rental properties, or farms for example) have to be reported on their appropriate schedules with the 1040.

Therefore, while it is true that expenses related to tax preparation can be deducted from your annual tax return, this does not mean that all such expenses can be deducted and it does not mean that all people can claim these deductions. Due to the two percent AGI exclusion, this deduction is frequently limited to wealthy people with complex tax situations.

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