Can You Deduct Your Tax Preparation Fee

Can you deduct your tax preparation fee?  It's is one of the most asked questions at tax time. You may be happy to know that the answer to that question is yes but, as usual, stipulations apply. Tax law allows tax payers to deduct preparation fees paid to a professional. It also makes a provision for tax preparation software like Intuit TurboTax or H&R Block TaxCut. If you prefer to do your taxes the old-fashioned way, with a pencil and a calculator, you may still be eligible for a deduction.

The Good News
Tax preparation fees are deductible as a miscellaneous expense. According to Internal Revenue Code Section 1.212-1(l), the "expenses paid or incurred" by a tax payer in the process of determining and preparing their tax status are deductible. Not only can tax payers get relief from fees paid to tax preparers or special do-it-yourself software, tax payers can also get reimbursed for books or other items they may have purchased to help understand and prepare their own taxes. This means that potentially everyone gets a break when it comes to tax preparation.

The Bad News
The problem with relying on this deduction is that you might not be able to spend enough to get it. Because tax preparation fees fall under the miscellaneous expense category, they will be deductible only if the total amount of your miscellaneous deductions are 2% of your Adjusted Gross Income. A tax preparation fee ranges from $50 to $150 in most average cases. If you don't spend much on tax prep and if this is your only miscellaneous deduction, it is nearly impossible to reach 2% of your Adjusted Gross Income.

The Silver Lining
Fortunately, the miscellaneous expense category covers items such as subscriptions to work-related magazines, other tools and supplies used in your work, bank charged fees to maintain your IRA account and adult education tuition used to help you at work. As you can imagine, these expenses do add up and can elevate your miscellaneous deductions above the 2% baseline.

Additional Deductions
In addition to miscellaneous deductions, possible tax deductions can be allocated to self-employed business (Schedule C), farm operation (Schedule F) and rental or royalty income (Schedule E). The good news is that these three deductions are not subject to the 2% rule, but the bad news is that most taxpayers will not benefit from them unless they own a business, own a farm or own a rental property. If you are one of the lucky ones, you can deduct the related preparation fees without worrying about the 2% minimum.

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