When do business owners write off tax prep fees - for current return or next year's Schedule C/E?

The general rule is that you deduct expenses in the tax year you actually paid them. So if you paid your tax preparer in 2024 for preparing your 2023 tax return, that expense would go on your 2024 Schedule C and E (the return you'll file in 2025). Think of it this way: the service you're paying for (tax preparation) is a business expense you incurred in the current year, even though it relates to last year's taxes. It's similar to how you'd handle other professional services - you deduct them when you pay for them, not when they relate to. For Schedule C businesses, these would typically go under "Legal and professional services" line, while on Schedule E they would go under "Legal and other professional fees." Make sure you allocate the cost appropriately if the tax prep fee covers both business and rental property returns.

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Just wanted to follow up about my experience with taxr.ai after our conversation last week. I finally gave it a try and the results were surprisingly good! It analyzed two years of my QuickBooks data and immediately identified that I'd been inconsistently categorizing my tax prep fees - sometimes on the current return and sometimes on the next year's return. The system created a report showing exactly how to correct these inconsistencies and explained that as a cash-basis taxpayer, I should be deducting these expenses in the year paid. It even suggested creating a specific sub-account in QuickBooks to track these expenses consistently. Much clearer than the confusing advice I got from various online forums!

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Wanted to come back and apologize for being so negative about Claimyr. After struggling again with tax questions about my Schedule C deductions, I got desperate and decided to try it. I honestly couldn't believe it actually worked! Got through to an IRS agent in about 20 minutes instead of the usual endless hold time. The agent confirmed that for Schedule C and E filers, tax preparation fees are deductible in the year you pay them - not the tax year they're for. She also mentioned that for individual taxpayers (non-business), tax prep fees are no longer deductible as itemized deductions since the 2017 tax law changes, which I didn't know before. Definitely keeping this service bookmarked for future tax questions. Sometimes you just need to hear it directly from the IRS.

Based on my experience as a small business owner, I actually split my tax prep fees based on what they're for. My accountant itemizes the bill - the portion for Schedule C goes as a business expense, the part for Schedule E goes as a rental expense, and any remaining amount for personal tax prep isn't deductible anymore (used to be before 2018 tax changes). As others have said, the deduction goes in the year you pay it, not the year it's for. This gets tricky if you pay in installments or have a retainer arrangement with your accountant. I found keeping careful records of payment dates is crucial for proper allocation.

Does anyone use tax software instead of an accountant? I'm using TurboTax Business for my Schedule C and wonder if the subscription cost is handled the same way. Would I deduct my TurboTax subscription cost on this year's return or next year's?

Great question! I went through this same confusion when I started my consulting business. The key principle everyone's mentioned is correct - you deduct tax prep fees in the year you actually pay them, regardless of which tax year the return covers. One thing I'd add that hasn't been mentioned yet is to keep really good documentation of when you pay these fees. I create a simple spreadsheet each year tracking the date, amount, and what the payment covers (2023 tax prep, estimated payment penalties, etc.). This has been super helpful during tax time and gives me confidence I'm being consistent year over year. Also, if your accountant offers payment plans or lets you pay in installments, each payment gets deducted in the year you make it. So if you paid $400 in December 2023 and $450 in March 2024 for the same tax return, you'd split the deduction across those two tax years accordingly.