That catches many people out, including Australians with US income, US-based freelancers and owners of US pass-through entities. Older rules allowed a deduction for personal preparation fees, and plenty of online advice still repeats them. This guide uses the finalised 2025 tax-year IRS forms and shows where each type of fee belongs. Dollar amounts are US dollars.
Key Takeaways
- Personal Form 1040 preparation fees are not deductible on Schedule A for federal purposes.
- Fees tied to business, rental or farm income belong on Schedule C, E or F.
- Partnerships and corporations deduct their own fees on their own returns.
- Split mixed invoices and claim only the business portion, backed by an itemised invoice.
Where Do Tax Preparation Fees Go on Form 1040?
The main form has no preparation-fee line
Form 1040 has no standalone entry for a personal preparation fee. Schedule A, line 16, accepts only the listed categories, and personal tax preparation is not one of them.
The history explains the confusion:
- Before 2018: personal preparation fees were a miscellaneous itemised deduction, subject to a 2% of income floor.
- 2018 to 2025: IRC 67(g) disallowed those deductions.
- 2026 onward: P.L. 119-21, section 70110, enacted 4 July 2025, removed the sunset and renumbered the rule as 67(h). Deductibility does not return automatically.
Any article promising an automatic restoration in 2026 is out of date.
Attached schedules and flow-through
Form 1040 carries schedules for business, rental and farm income. A qualifying fee is recorded on the relevant schedule as an expense. The schedule's net profit or loss then flows to Form 1040.
So the fee never appears on Form 1040 itself. It reduces the net figure that does.
Schedules C, E and F
| Activity | Schedule | Line (2025 forms) |
|---|---|---|
| Sole proprietor or contractor | Schedule C | Line 17, legal and professional services |
| Rentals and royalties | Schedule E | Line 10, legal and other professional fees |
| Farming | Schedule F | Lines 32a-f, other expenses (specify) |
Schedule F line 17 is fertilisers and lime, so don't use it for fees. Line numbers change between editions, so check the instructions for your tax year.
Entities use their own returns
Partnerships, S corporations and C corporations deduct their professional fees on the entity return:
- Form 1065: line 21, other deductions, with an attached statement
- Form 1120-S: line 20, other deductions, with an attached statement
- Form 1120: line 26, other deductions, with an attached statement
For partnerships and S corporations, the deduction reduces ordinary income reported in box 1 of each owner's Schedule K-1. Owners should not also claim the fee personally. One narrow exception exists: unreimbursed partnership expenses that the partnership agreement requires and that qualify under IRC 162 go on Schedule E, line 28, marked "UPE".
A simple decision path
Ask four questions in order:
- Who is the client? If the entity engaged the preparer, the fee belongs on the entity return.
- What did the service cover? Personal Form 1040 work stays personal and non-deductible.
- Which income did it support? Match it to Schedule C, E or F.
- Does a separate entity return exist? If yes, the entity claims it.
Focus on which return or schedule reflects this service, not which line on Form 1040.
When Are Tax Preparation Fees Deductible?
The federal standard
IRC 162(a) allows ordinary and necessary expenses of carrying on a trade or business. IRC 262(a) bars personal, living and family expenses unless the code expressly allows them.
Under IRS Publication 535, an ordinary expense is common and accepted in your industry. A necessary expense is helpful and appropriate, not indispensable.
Fees that may qualify
Fees qualify when they support a trade, business, rental or farm activity. Examples:
- Schedule C, E or F, or entity return preparation
- Business tax advice and planning
- Software and e-filing charges for business filings
- Professional help with business-related IRS notices
This covers sole proprietors, freelancers, gig workers, independent contractors, landlords, royalty earners, farmers and owners of pass-through entities. Your filing structure decides whether the expense sits on an individual schedule or an entity return.
Fees that stay personal
Preparing your personal Form 1040, claiming personal credits and personal tax planning remain personal, even if you own a business. Paying the invoice from a business bank account doesn't change that. Payment source doesn't establish deductibility; purpose does.
Mixed invoices: a hypothetical split
IRS guidance confirms you deduct only the business portion, but it sets no fixed allocation percentage. Use a documented, reasonable method such as itemised tasks, time records or forms prepared.
Hypothetical example, for illustration only:
| Invoice item | Amount | Treatment |
|---|---|---|
| Personal Form 1040 | $450 | Not deductible |
| Schedule C preparation | $300 | Schedule C, line 17 |
| Total invoice | $750 | $300 deductible |
The allocation should match the invoice and the engagement letter.
State rules can differ
State allowances don't create a federal deduction. For the 2025 tax year, California doesn't conform to the federal suspension and accepts preparation and e-filing fees on Schedule CA (540), Part II, line 20. New York's IT-196 line 23 also allows preparation fees.
Check your state's current instructions before assuming federal treatment applies.
How Do You Report Business-Related Fees Correctly?
Step 1: Identify what the fee supports
Read the invoice. Decide whether each item relates to Schedule C, E or F, an entity return, or only personal Form 1040 work. Ask your preparer for an itemised invoice that separates preparation, planning, bookkeeping, state returns, entity returns and personal advice.
Step 2: Record it in the right place
Enter the business portion on the matching schedule line from the table above. For entities, record it as an other deduction on the entity return. Under cash-method accounting (Publication 334), you generally deduct the fee in the year you pay it, so a fee paid in 2025 for a 2024 return belongs in 2025.
On Schedule E, rental legal costs for title defence, acquisition or improvements are capitalised, not deducted on line 10.
Step 3: Follow the amount to Form 1040
Schedule C profit or loss flows to your individual return, as does Schedule E and F income. The original fee is a schedule-level entry. Form 1040 only sees the net result.
Step 4: Fix payments from the wrong account
If a company card paid a mixed invoice, separate the personal portion. Then document it as a reimbursement, distribution or compensation, as appropriate for the entity type.
The IRS treats personal expenses paid by a corporation seriously. In a 2021 non-precedential memorandum (CCA 202118009), a C corporation's payment of shareholder personal expenses was recharacterised as dividend income.
In an older case, Ghosn v. Commissioner (T.C. Memo. 1995-192), personal payments intended as compensation were deductible because total pay was reasonable. Talk to a tax professional before treating personal costs as corporate expenses.
Step 5: Check state treatment
A fee treated one way federally may need adjusting on a state return. Review your state's current instructions rather than assuming federal treatment controls.
What Records Should You Keep?
Supporting documents
Documents should establish the amount paid and the business purpose. IRS Publication 583 lists invoices, receipts, paid bills and cancelled cheques. Keep:
- Itemised invoices and engagement letters
- Proof of payment
- Tax software receipts
- Preparer correspondence
- Your allocation worksheet
- Copies of the related schedules or returns
Proof of payment alone doesn't establish deductibility. Electronic records must be accurate, accessible and reproducible.
Retention periods
| Situation | Keep for |
|---|---|
| General rule | 3 years |
| Refund or credit claim | Later of 3 years after filing or 2 years after payment |
| Unreported income above 25% of gross income | 6 years |
| Worthless-security loss or bad-debt claim | 7 years |
| No return or fraudulent return | Indefinitely |
Three years is not a universal disposal deadline. Store records by tax year.
Mistakes to avoid
- Claiming the whole mixed invoice
- Putting a personal fee on Schedule A without checking eligibility
- Deducting an entity's fee on your personal return
- Assuming a business payment makes the fee deductible
- Leaving a vague year-end bookkeeping label instead of reclassifying before filing
How Much Does Professional Tax Preparation Cost?
What drives the fee
Complexity sets the price. Common drivers include:
- Number of schedules and business entities
- Multiple states, investments and foreign activity
- Missing records, bookkeeping clean-up and IRS notices The National Society of Accountants (NSA) also lists credentials, expedited work and late submissions as factors.
The figures below are dated US benchmarks, not current quotes. NSA's 2025 public summary doesn't publish form-specific national averages, so these come from NSA's 2023 survey, except Schedule C.
| Return | US average | Source period |
|---|---|---|
| Form 1040, not itemised, with state return | $279 | NSA 2023 |
| Form 1040, itemised, with state return | $392 | NSA 2023 |
| Schedule C | $192 | NSA 2020-2021 |
| Form 1065 | $815 | NSA 2023 |
| Form 1120-S | $970 | NSA 2023 |
| Form 1120 | $1,004 | NSA 2023 |
The 1040 averages include a state return, so they aren't federal-only. Ask your preparer whether a Schedule C fee is added on top of the 1040 fee.
Fee structures and questions to ask
Preparers charge flat fees, hourly rates or per-form prices. State returns, e-filing, amended returns, bookkeeping, planning and IRS representation are often billed separately. Before hiring, ask for:
- A written scope of work
- Credentials and PTIN (every paid preparer needs one)
- Services included and billing increments
- Support after filing
CPA, preparer or accounting support
Software or a basic preparer can suit a simple W-2 return. Complexity changes that, as do business ownership, cross-border income, multiple entities, notices or planning needs.
Credentials matter for representation. CPAs, enrolled agents and attorneys have unlimited IRS representation rights. Annual Filing Season Program participants have limited rights, and PTIN-only preparers have none for current returns.
VJM Global's US-compliant professionals and CPA-led tax compliance team can help businesses separate business from personal fees, keep supporting records and handle wider compliance, including Form 1040, 1065, 1120 and 1120-S filings. That support doesn't replace a review of your own circumstances, especially with several entities or states.
Frequently Asked Questions
Where do professional fees go on a tax return?
Business-related professional fees go on the relevant schedule or entity return, such as Schedule C line 17. Personal preparation fees have no dedicated entry on the main Form 1040. Check current-year form instructions.
Is the fee for tax preparation deductible?
Personal fees are not federally deductible. Fees for business, rental, farm or entity filings may be. State rules differ, so check both.
How much will an accountant charge for a tax return?
It depends on complexity, schedules, entities, states, record quality and extra services. Ask for a written estimate before work begins.
How much does it cost to file your taxes in the US?
Free options exist for eligible taxpayers, such as IRS Free File for 2025 AGI of $89,000 or less. Paid preparers and CPAs charge more, and business returns cost the most. Use dated survey figures only as a guide.
Is it better to use a CPA or tax preparer?
Choose a CPA or enrolled agent when you own a business, need planning or may need IRS representation. A preparer or software can suit a simple return on a tight budget.
Is it worth having a tax accountant?
Often, for complex or business-related returns. Value comes from accurate reporting, finding eligible deductions, better records and less time spent. Simple returns may not justify the cost.
