Sorting last year's bills and invoices can leave you wondering whether tax preparation fees count as deductible expenses under corporate tax accounting. Can I deduct tax preparation fees for my small business, or are those accountant fees only eligible on Schedule A as itemized deductions for individuals? This article explains IRS rules on tax prep fees, the difference between business expenses and personal expenses, where to report fees on your return, and simple steps to document costs so you keep more of what you earn.

Haven's accounting services for small businesses help you track receipts, classify tax filing fees correctly, and claim every eligible deduction without guesswork.

Table of Contents

• Tax Preparation Fees for Personal Taxes: Are They Deductible?

• When Can You Deduct Tax Preparation Fees? Business & Self-Employed Exception

• What Counts as Deductible Tax Preparation Costs?

• How to Separate Personal and Business Tax Prep Fees

• How Much Does Professional Tax Preparation Cost?

• Book a Call to Learn More About our Accounting Services (Trusted by 400+ Startups)

Tax Preparation Fees for Personal Taxes: Are They Deductible?

Under the Tax Cuts and Jobs Act of 2017, personal tax preparation fees are not deductible on federal returns for tax years 2018 through 2025. That covers charges for tax software, fees paid to a paid preparer, and e-filing costs tied to your individual federal, state, or local returns. Before 2018, those expenses appeared as miscellaneous itemized deductions on Schedule A and were subject to the 2 percent floor. W-2 wage earners and most individual filers cannot claim them on their federal returns at present.

Who Still Gets a Break: Exceptions and Workarounds

You can deduct tax preparation fees when they are part of running a business or producing business income. If you are self-employed, a sole proprietor, a farmer, or you have rental activity, the portion of the preparer fee attributable to business schedules is an ordinary business expense. Partnerships, S corporations, and estates or trusts generally deduct preparer fees on the entity return, with flow-through as appropriate. If a single invoice covers both personal and business work, allocate the time or charge and deduct only the business piece.

How to Claim These Fees if They Qualify: Forms and Allocation

Report business-related preparation fees where you already report other business costs. For sole proprietors, include them on Schedule C under legal and professional services or other appropriate expense lines. For rental income, report it on Schedule E. Partnerships and S corporations deduct fees on Form 1065 and Form 1120 S, respectively, and estates and trusts use Form 1041. Keep the preparer's invoice and a transparent allocation between personal and business work, because the IRS expects documentation if the deduction is questioned.

State Rules and the 2025 Expiration

State tax treatment varies. Some states did not conform to the federal suspension and still allow similar deductions at the state level. The TCJA provision that suspended miscellaneous itemized deductions expires at the end of 2025, so these federal deductions could return for the 2026 tax year unless Congress acts differently. Watch federal and state legislative changes and your state tax guidance for updates.

Practical Steps You Can Take Now

Ask your preparer for an itemized invoice that separates personal from business work. Save receipts for software subscriptions and e-filing fees, and note which returns or schedules each charge supported. If you are unsure how to allocate costs, discuss it with your tax advisor so you avoid overstating deductions and maintain audit-ready records.

When Can You Deduct Tax Preparation Fees? Business & Self-Employed Exception

If you run a business as a sole proprietor or independent contractor, you can deduct tax preparation fees that relate directly to your business on your business return. The IRS treats those fees as ordinary and necessary business expenses when they are for preparing business schedules or advising on business tax issues. Employee unreimbursed tax prep fees remain suspended as miscellaneous itemized deductions through 2025, but that suspension does not apply to fees tied to a trade or business activity.

Who Qualifies: Schedule C, Schedule F, Schedule E, and Business Entities

Schedule C filers include freelancers, independent contractors, gig workers, and small business owners who report profit or loss on Form 1040 and Schedule C. Farmers who report on Schedule F can deduct fees directly related to their farm business. Business entities such as partnerships and S corporations deduct preparer fees on the entity return; individual partners or shareholders generally cannot claim a separate deduction for fees the entity pays. Owners who receive K-1s should rely on the entity to deduct business preparer costs rather than claiming those fees on their return.

Gig Workers, Commissioned Sales Agents, and Other Common Examples

If you drive for a delivery app, contract for TaskRabbit, sell on commission, or earn 1099 income, you likely file Schedule C and can deduct tax prep software and accountant fees that are business-related. Full-time commissioned sales agents and life insurance agents who operate as independent contractors also qualify when they report trade or business income.

Which Fees Count as Deductible Business Expenses

Deductible items include tax preparation software bought to run business schedules, fees paid to CPAs or enrolled agents for preparing business returns and related business tax advice, and the portion of a combined tax return fee that is allocable to business schedules. Fees that only relate to personal items, such as Form 1040 line items for personal credits or non-business income, should not be claimed as business expenses.

How to Claim the Deduction on Your Tax Forms

Sole proprietors enter business tax prep fees on Schedule C under legal and professional services or the appropriate expense line. Farmers use Schedule F. Partnerships and S corporations deduct fees on the entity return, so the business bears the cost and reports the expense. If a preparer charges one invoice for both personal and business work, you must allocate and only deduct the business portion on the correct schedule or return.

State Returns and Differences From Federal Treatment

Many states follow federal treatment, but some allow different deductions or require adjustments. You can often deduct the same business-related preparer fees on state returns when the state permits business expense deductions, but check state rules or consult a CPA to confirm state-specific treatment.

Recordkeeping: What To Save and For How Long

Keep invoices, payment receipts, engagement letters, and notes showing how you allocated a combined preparer bill between business and personal work. Retain records for at least three years after filing, and longer if you claim credits or have complex issues that may prompt review.

Common Pitfalls and Audit Triggers

Common mistakes include claiming the personal portion of a mixed invoice, treating employee unreimbursed expenses as deductible, and failing to document allocation between personal and business services. Paying a preparer with a business account without clear documentation can raise questions, so track exactly what services were provided.

Questions to Ask Yourself Before Claiming the Deduction

• Are you reporting the income as a business on Schedule C, F, or through an entity that deducts its expenses?

• Can you show the preparer invoice that ties fees to business schedules or business tax advice?

Those answers determine whether you treat the cost as a business deduction or as a nondeductible personal expense.

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What Counts as Deductible Tax Preparation Costs?

Self-employed people and business owners who file Schedule C can deduct tax preparation fees that are ordinary and necessary business expenses. That covers fees you pay to prepare a business tax return, fees for business tax advice, and software you use to prepare your business return. Can I deduct tax preparation fees that mix personal and business work? Only the business portion is deductible, and you must allocate that share.

Hire an Accountant or Tax Professional: What Counts

Fees you pay an accountant or tax advisor to prepare your business tax return, produce schedules tied to your trade, or give tax planning and compliance advice for your business qualify as deductible business expenses. If the preparer works on both your personal and business returns, allocate the bill and deduct only the portion for business work.

Tax Filing Software and Online Services: When to Claim the Cost

Paid software subscriptions, fees for e-filing business returns, and online bookkeeping or tax prep tools used to produce your business filings are deductible. If the software serves both personal and business tasks, divide the cost and deduct the business share.

LLC and Partnership Tax Prep Fees: Who Deducts What

A single-member LLC treated as a sole proprietorship reports tax prep costs on Schedule C. A multi-member LLC taxed as a partnership or an actual partnership generally deducts the price on the entity's return. S corporations follow the same pattern at the entity level. If partners or members pay separately for advice about their tax situation, that separate amount is usually personal and not deductible on Schedule C.

Education and Tax Training: When It Qualifies as a Business Expense

Courses, webinars, and training that maintain or improve skills you use in your business count as deductible business education. Training that brings you up to date on tax law or helps you run your books for the trade can be expensed. If schooling prepares you for a new trade or leads toward a new degree, the cost will not qualify as a business deduction.

Office Supplies and Postage: Small Items That Add Up

Folders, binders, labels, printer paper, ink, and postage used to organize and send business tax documents are deductible as office supplies or business expenses. Track the receipts and show the items were used for the business portion of your tax work.

Recordkeeping and How to Report These Expenses on Schedule C

Keep invoices, receipts, and notes that explain the business purpose and how you allocated mixed-use items. On Schedule C, report tax preparer fees under professional or legal services, list software under office expense or software expense, and record supplies under supplies. The IRS looks for documentation that ties each expense to the business.

Practical Example: $400 to a Preparer, $100 for Software, $50 for Supplies

If you pay a tax pro $400 for preparing your Schedule C return, pay $100 for business tax software, and buy $50 in folders and postage used only for business tax documents, enter $400 as professional services, $100 as software expense, and $50 as office supplies. If any of those items also served personal returns, split the amounts and claim only the business share.

Common Questions and Traps

Can I Deduct Fees for Preparing My Personal Tax Return?

Not under current law for most taxpayers; the deduction for miscellaneous itemized expenses is suspended for tax years 2018 through 2025.

What About the Partnership Fees I Paid Personally?

If the partnership did not reimburse you and the cost was purely for the partnership return, the entity should have deducted it; personal deduction is limited.

Are Penalties and Interest Deductible?

Generally, fines and penalties are not deductible, though some business tax-related interest may be. Keep clear records and ask your preparer to allocate mixed bills in writing so you can support the deduction.

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How to Separate Personal and Business Tax Prep Fees

Require the preparer to list hours or flat fees for business return work, tax planning for the business, payroll filing, and any personal Form 1040 work. An itemized bill is your primary evidence for a business deduction and your best defense in an IRS inquiry.

Use a Reasonable Allocation Method When Work Is Mixed

If the preparer spent 6 hours on business filings and 2 hours on your return, allocate 75 percent of the fee to the business and 25 percent to personal. If you use tax software for both a Schedule C and Form 1040, split the cost by function or time used and document your rationale.

Record the Deduction on the Correct Return and Account

Sole proprietors claim tax prep costs for business work on Schedule C as a business expense under professional fees or other costs. Partnerships and corporations deduct preparer fees on Form 1065 or Form 1120, respectively. Do not put business deductions on your Form 1040 unless the price is genuinely personal.

Handle Mixed Payments From Business Accounts Carefully

If the company pays the preparer for both business and your return, have the company reimburse you for the personal portion, or treat that portion as owner distribution or additional compensation, depending on entity type. For S corporation shareholders, personal tax prep paid by the S corp can create taxable wages or distributions if not properly allocated; check with your CPA before paying.

Keep Contemporaneous Documentation and an Allocation Worksheet

Save the invoice, engagement letter, time logs, email exchanges describing work scope, screenshots of software usage, and your allocation calculation. Tag these files to the tax year and store them with tax return copies so you can produce them quickly in an audit.

Distinguish Deductible Tax Advice From Nondeductible Personal Advice

Fees for planning business transactions, entity selection, or R&D credits are deductible business expenses. Fees solely for preparing your Form 1040 are nondeductible under the current suspension of miscellaneous itemized deductions through 2025. When advice covers both business and personal tax strategies, allocate by topic or time spent.

Use Practical Examples to Justify Allocations

• Example: preparer charges $1,200 with 4 hours on payroll, 2 hours on corporate tax planning, and 2 hours on your return; allocate $900 to the corporation and $300 to you.

• Software example: you buy a $200 package used 50 percent for bookkeeping and Schedule C work, and 50 percent for personal 1040 filing; record $100 as a business expense and keep a note explaining the split.

Control Who Pays and How the Books Record the Fee

Pay business-related fees directly from the business bank account and code them to a tax or professional fees expense account. If you use a corporate card for mixed fees, immediately allocate and reimburse the company for the personal share, and document the transaction.

Prepare for Audits by Showing Substance and Good Faith Allocation

The IRS accepts reasonable allocations supported by contemporaneous records. Avoid vague lump sum bills, and always be able to explain how you reached your split and why the portion claimed is ordinary and necessary for the business.

How Much Does Professional Tax Preparation Cost?

Average fees vary by return type and the firm you hire. The National Association of Tax Professionals reports an average cost of about $192 to prepare a Schedule C return, with an average hourly rate near $150. For corporations filing Form 1120, the reported average per filing was roughly $182, while average hourly rates for complex corporate work can reach into the high hundreds, even around $900 in some surveys. Business return costs rose by about $85 year over year, driven by tax law changes, inflation, and a shortage of qualified accountants.

How Return Type and Complexity Drive Your Bill

A simple sole proprietor return with clean books takes far less time than a multi-state corporate return with payroll, depreciation schedules, and dozens of forms. Partnership and S corporation returns need K-1 allocations and sometimes tax basis calculations, which add hours. If you run payroll, handle employee benefits, or have significant fixed assets, expect higher charges. Messy or missing records create hourly work that multiplies the bill.

Hourly Versus Flat Fee: Which Pricing Model Fits Your Needs

Many CPAs charge a flat fee for routine returns and an hourly fee for consulting, audits, or messy records. An hourly model makes sense when complexity and unknowns exist; a fixed fee works when the scope is well defined. Ask for a written engagement letter that explains whether e-filing, state returns, and audit support are included or billed separately.

Extra Charges That Often Appear on the Bill

Common add-ons include multiple state returns, electronic filing fees, bookkeeping to clean up your records, amended returns, late filing penalties preparation, and time for IRS correspondence or audit support. Travel time, rush fees, and research on new tax law issues can raise costs as well. Missing documents can convert a modest flat fee into a much larger hourly bill.

Can I Deduct Tax Preparation Fees? What You Can and Cannot Write Off

For individuals, the rules changed after 2017. Tax preparation fees that were once miscellaneous itemized deductions on Schedule A and subject to a 2 percent of adjusted gross income floor are suspended from 2018 through 2025 under current federal law. That means most personal tax prep fees are not deductible on Form 1040 during that period.

Business-Related Tax Prep Fees Remain Deductible

If you are a sole proprietor, deduct the portion of the tax prep bill related to your Schedule C as a business expense. Corporations and partnerships deduct fees at the entity level, and partnerships or S corporations generally reduce K-1 taxable income by business allocated expenses before issuing the K-1. Tax advice or fees directly tied to producing business income are ordinary and necessary business deductions. Fees for investment advice, estate planning, or personal matters usually follow different rules and often are not deductible for individuals in the current tax code. State rules can differ, so check your state return treatment and invoice allocation between personal and business work.

How To Document and Allocate Fees for Deduction

Ask the preparer to itemize fees on the invoice by task: business return preparation, personal return preparation, state filings, and advisory time. Keep copies of the engagement letter and receipts. For pass-through entities, keep the entity invoice separate from any personal work the preparer did for partners or shareholders. Transparent allocation reduces audit friction and helps your tax accountant accurately record the deduction.

Ways to Control Costs and Confirm Fees Upfront

Request fee estimates from multiple professionals and ask what is included. Provide organized, digital records and a checklist to reduce prep time. Consider hiring a bookkeeper year-round so your CPA spends less time sorting transactions at tax time. For straightforward returns, you can use lower-cost preparers or online services; for complex returns, stick with a qualified CPA who offers audit support and tax planning. Ask about billing increments and whether phone calls or emails count as billable time.

Red Flags When Choosing a Tax Preparer

Avoid preparers who guarantee a huge refund, refuse to sign returns, or will not provide a PTIN. Watch out for advice that asks you to hide income or shift deductions without proper documentation. Confirm credentials, ask for references, and make sure the engagement letter spells out scope, fees, and who will represent you if the IRS questions the return.

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Can I Deduct Tax Preparation Fees for My Startup?

If you are self-employed or the fee relates to business returns, tax preparation fees are generally deductible as an ordinary and necessary business expense on Schedule C or the business tax return for corporations and partnerships. For personal income tax preparation fees, federal rules suspend miscellaneous itemized deductions subject to the two percent AGI floor through tax year 2025, so most individual personal tax prep fees are not deductible on Form 1040. State rules vary, and some states still allow deductions for preparer fees on state returns.

How Haven Maximizes Deductible Tax Prep and Professional Fees

We split combined invoices between personal and business work, track which filings and consultations are business-related, and document the business purpose. For owners on payroll, we help implement accountable plans so reimbursed business tax expenses are not taxable to the employee and remain deductible for the company. We also optimize timing and billing to align deductions with the right tax year and maintain engagement letters and backup for audit defense.

Audit, Penalties, and On-Time Filing Management

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Our clients include early-stage and growth companies that need clean books, reliable filings, and credit capture. We track credits, refunds, and time saved so founders see the cash impact. If you want, we can run a no-obligation savings estimate showing likely R D credits and deductible business professional fees for your prior year.

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