Whether you’re an SMB, self-employed or just an ordinary taxpayer, software that assists with the preparation of the right tax returns for you needs is undoubtedly helpful.
But is tax software itself deductible and, if so, what are the requirements to be able to claim the tax back?
Who Is Eligible for Tax Software Deductions?
Before 2018 tax preparation fees were deductible for all taxpayers but only if they itemized their deductions and the amount of their miscellaneous deductions exceeded 2% of their adjusted gross income. Sadly, these days are over: as of 2018 wage- and salary-earning employees who itemize their deductions on a Schedule A cannot take advantage of deducting the tax from their tax preparation fees at all due to the suspension of the rule concerning the 2% threshold for miscellaneous deductions. The only exceptions to this rule are self-employed taxpayers – i.e. SMB owners and people employed as contractors – and anybody else that must report business incomes and expenses on a Schedule C.
How to Make Tax Software Deductible?
Even if taxpayers running a business can deduct tax spent on tax preparation software, it still isn’t quite as black and white as it might first seem simply because the law states that the only eligible tax deductible business expenses for tax prep fees are those that are strongly related to the business itself. Simply put, tax prep fees are fully deductible provided that they were spent exclusively on preparing business tax returns and not personal ones.
Thankfully, this can be easily achieved by turning to a certified tax expert that can create business tax returns without merging them with personal ones, or by opting to use tax prep programs that deal only with business forms such as TurboTax Business. With online tax solutions, however, you have to pay attention to multiple things. For starters, these solutions are mostly intended for creating personal tax returns, which means that the majority of them are excluded from being deductible by default. As such, only the top-tier online tax prep products are eligible for tax deduction since those are the only versions that can handle business-related tax forms.
But even if all these criteria are met, there is still no guarantee that the full purchase price paid for the top-tier product can be deducted from your business taxes. In fact, taxpayers are only entitled for a partial deduction if the program is used for personal taxing as well, which happens rather frequently to those who have other sources of income and/or consider their businesses to be little more than a side job. If that’s the case, then you have no choice but to calculate the price difference between the top-tier and the next best product and claim that amount as a deduction.
- Why Should I Use Tax Software?
- Which Tax Software Should I Use?
- Should I Update My Tax Software?
- Is Tax Software Deductible?
- How Does Tax Software Work?
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