The tax-filing process can be stressful, especially if you don’t know what you’re doing. Throw in the fact that the tax code underwent a major overhaul last year and you might find that you’re really struggling to complete your return accurately.
If that’s the scenario you’re facing, it may be wise to hire a tax preparer to tackle that return for you. The benefit of doing so is that you’re less likely to make mistakes that increase your audit risk or miss out on key tax breaks that could put money back in your pocket.
According to the National Society of Accountants’ 2016-2017 fee survey, the average cost to prepare a simple Form 1040 was $176.
Meanwhile, the cost for a 1040 plus Schedule A (for itemized deductions) was $273.
If your taxes are complicated, however, your bill might amount to much more.
As such, you may be wondering whether you can recoup some of that money by deducting your tax-prep fees on your 2018 return.
And the answer is: It depends.
Who gets a break on tax-prep fees?
If you’re self-employed, then tax-prep fees are fair game when it comes to claiming deductions. But if you’re a salaried or part-time worker employed by someone else, then tax-prep fees are off the table as the result of last year’s tax overhaul.
Before you get too worked up about that, though, consider this: Unless your tax-prep fees are astronomical, there’s a good chance you wouldn’t have gotten to claim them under the old rules, anyway. The old tax code featured a deduction for miscellaneous expenses that included things such as unreimbursed business expenses, investment fees, and tax-prep fees. These fees were only deductible if they exceeded 2% of your adjusted gross income (AGI).
Here’s what that means: Let’s say your AGI in 2017 was $50,000 and you spent $300 on tax-preparation fees and had no other miscellaneous expenses to claim. That means you wouldn’t have gotten to take the deduction, because $300 is well below the $1,000 threshold at which you can begin claiming it (2% of $50,000 = $1,000). Even if you spent $1,000 on tax prep that year — which would be unusual for someone with an AGI of $50,000 — you still wouldn’t have gotten the deduction because your costs needed to exceed $1,000.
Therefore, don’t get too upset about the fact that a deduction no longer exists for tax-prep fees (or tax-prep software, for that matter). Chances are, you would’ve had a hard time snagging it.
That said, don’t let that absent deduction deter you from hiring a professional if you need the help. A few hundred dollars in fees might save you well more than that if your tax preparer identifies deductions or credits you otherwise wouldn’t have known about. And that’s reason enough to consider enlisting some outside assistance — especially if you’re pretty clueless about filing taxes and don’t want to risk making a mistake.
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Source: The Motley Fool