Though hiring an outside professional to do your taxes is by no means required, some taxpayers feel more comfortable relying on an expert. According to the National Society of Accountants, it costs an average of $261 to hire a professional to do your taxes, but if your return is complicated, paying for outside help could be a smart move. And while nobody wants to spend more money than necessary to file a tax return, here's some good news: You may be eligible to claim tax preparation fees on your taxes.
That's right: The IRS allows taxpayers to claim what's known as the miscellaneous expenses deduction, and tax preparation costs -- whether in the form of purchased software or fees charged by a professional -- are included in that category. But don't celebrate just yet, because unless your miscellaneous expenses exceed a certain threshold, they won't result in a tax break.
How to deduct tax preparation fees
While you're allowed to deduct your tax preparation fees, you're only eligible to do so if you itemize your deductions. Those who take the standard deduction can't double dip.
You can write off your tax preparation fees as part of the miscellaneous expenses deduction, which includes things such as unreimbursed business expenses. (Say you buy a subscription to a specific publication or journal to further your research for your job, and your company doesn't pay you back for it. You can deduct that, as well as the cost of job-required uniforms that are clearly distinguishable from regular attire.) The catch, however, is that you can only take a deduction for miscellaneous costs that exceed 2% of your adjusted gross income (AGI).
So let's say you earn $60,000 a year, have $200 in unreimbursed business expenses, and another $261 in tax preparation fees for a total of $461. Because that $461 isn't even close to the 2% threshold (which, in this case, is $1,200), you won't be able to take a deduction at all.
Now let's say you spend that same $261 to have your taxes prepared, but shell out $1,000 for unreimbursed business expenses as well. While your total miscellaneous expenses will equal $1,261 and constitute more than 2% of your AGI, you'll only be eligible to deduct whatever amount exceeds that threshold -- which, in our example, is a mere $61.
Keep in mind that unlike tax credits, which reduce your tax liability dollar-for-dollar, all deductions do is exempt a portion of your income from taxes. A $61 deduction, therefore, will only be worth about $15 if your effective tax rate is 25%.
That said, if you are eligible to deduct your tax preparation fees, you'll need to include them on your Schedule A, along with your other itemized deductions. Keep in mind that you can deduct fees paid to a professional as well as software and electronic filing fees. In fact, the good folks at the IRS will now allow you to deduct the convenience fee charged for using a credit card to file electronically, so be sure to count that in your calculation as well.
One final thing: The tax preparation fees deduction applies to the year you pay those fees. If, for instance, you pay someone to prepare your 2016 taxes in 2017, you'd claim an associated deduction on your 2017 return.
Finally, don't pay for a tax preparer just so you can claim a deduction. Rather, hire someone if you feel you need the help. Whatever minor tax benefits you get out of the deal generally won't be high enough to make you feel better about the actual fee.