Is Using Tax Preparation Software Deductible?
The IRS lets you deduct tax preparation fees in the year that you pay for them. For instance, if you use E-file.com to prepare your taxes during the year 2020, you can claim the expense on your 2020 tax return (the return which is typically filed during 2021). The same is true if you use an accountant to file your taxes or even a lawyer to assist with a IRS related tax issue. However, there is a small catch; in order to deduct tax preparation fees you must itemize your deductions.
When filing your taxes, you can take the standard deduction or itemize your deductions. The standard deduction is a set, flat-rate amount you can take to reduce your tax bill, which you might choose to make filing your taxes quick and easy. The standard deduction amount depends on whether you're filing single, jointly, or as head of your household. Should you take the standard deduction, you can't deduct any expenses, including tax preparation software.
People with more complex tax situations, such as home owners or business owners, often itemize their deductions. To benefit from taking itemized deductions, the total amount of the expenses you want to claim has to exceed the standard deduction. If you itemize, you can include the cost of your tax software or other preparation fees on your Schedule A of Forms 1040 and 1040NR.
The IRS doesn't set a limit on the number of software programs you can buy or their cost. However, these fees, whether they're from a tax professional or our software, which used to be deductible are no longer able to be deducted from your adjusted gross income.
Q&A: What is the 2020 standard deduction?
The standard deduction is a dollar amount that taxpayers are eligible to receive in order to reduce their income when not itemizing their individual deductions. The 2020 amount for the standard deduction depends on whether you're filing as a single person or jointly. The deduction has increased substantially for 2020, giving taxpayers an extra benefit to look forward to during the 2021 tax season.
The deduction is the same for single taxpayers and married individuals choosing to file separately, $12,400. For married couples who file jointly, the 2020 standard deduction is now $24,800. Heads of household can look forward to $18,650.
Utilizing a standard deduction on your tax return allows you to lower your taxable income, consequently decreasing your tax bill. Note that if you claim this, you cannot also itemize deductions on your return, you must choose to do one or the other.