If you prepare your own return, this article is not for you — though the software subscription follows the same rule, and the split below applies to it just as well.

Your preparer sends one invoice for one job. The return it produced has two halves: a business half, and a personal half that would have existed anyway.

The return only recognises one of them.

The short answer

The work Where the fee goes
Schedule C, Schedule SE, Form 8829 Line 17
Business tax advice, bookkeeping Line 17
Business legal work Line 17 — unless it bought an asset
Form 1040, Schedule A, personal items Nowhere
Legal fees to acquire an asset Added to the asset's cost

The half that counts

The Schedule C instructions are precise about which part qualifies:

"Fees for tax advice related to your business and for preparation of the tax forms related to your business."

And more generally:

"Fees charged by accountants and attorneys that are ordinary and necessary expenses directly related to operating your business."

Bookkeeping through the year, a call in September about a purchase, the fee for preparing Schedule C and Schedule SE, a lawyer's review of your client agreement — all of it, line 17.

The half that is worth nothing

Preparing your Form 1040, your Schedule A, your personal investment reporting: that is a personal expense. It used to be a miscellaneous itemized deduction, which was at least something for people who itemised.

Publication 525:

"For tax years beginning after 2017, you can no longer claim any miscellaneous itemized deductions."

So the personal half is not a smaller deduction. It is not a deduction.

Why the split is worth an emailAn unsplit invoice does not get you a partial deduction — it gets you a number you cannot defend and a choice between claiming too much and claiming nothing. Ask for the breakdown when you pay, while the preparer still has the job in front of them.

What the split is worth

A $900 fee, broken out by the forms it produced:

Portion Amount Treatment
Schedule C, Schedule SE, Form 8829 $600 Line 17
Form 1040, Schedule A $300 Nothing

The $600 does something the deductions in the last two articles do not. It is on Schedule C, so it reduces the net profit that self-employment tax is computed on — worth $84.78 of self-employment tax by itself, on top of the income tax.

That is a small number carrying a large point. Three deductions a self-employed person meets — health insurance, retirement contributions and the tip deduction — all sit on Schedule 1 and leave self-employment tax alone. A professional fee sits on Schedule C and does not. Where a deduction lives decides what it reduces, and that has been the thread through this whole part of the form.

The legal fee that is not a deduction this year

One trap worth knowing before you claim a lawyer's invoice.

Fees incurred in acquiring an asset are generally treated as part of the cost of that asset rather than deducted in the year they are paid. The legal work on buying a building, a vehicle or a business does not go on line 17 — it goes into the basis of the thing bought and comes back through depreciation.

The test is what the fee was for, not who sent it. A lawyer reviewing your standard contract is operating expense. The same lawyer closing a purchase is part of the purchase price.

What to ask for, and when

  1. Ask for the breakdown on the invoice, not next February. By form is the cleanest basis: business schedules on one side, personal on the other.
  2. If the preparer will not split it, allocate it yourself and write down the method — which forms, and roughly what share of the work. A documented allocation is defensible; a round number is a guess wearing a decimal point.
  3. Flag any legal bill that relates to buying something, before it goes anywhere near line 17.
  4. Keep the engagement letter. It describes the scope, which is the evidence behind whatever split you use.

One email in April is worth more than an afternoon of reconstruction a year later — which, by now, should sound like every other record on this site.

Common questions

Are tax preparation fees deductible for the self-employed?
The business part is. The Schedule C instructions allow "fees for tax advice related to your business and for preparation of the tax forms related to your business" on line 17.
What about the part that prepared my 1040?
Not on Schedule C, and in practice nowhere. Preparing the personal half of the return is a personal expense — a miscellaneous itemized deduction — and Publication 525 states that "for tax years beginning after 2017, you can no longer claim any miscellaneous itemized deductions."
How do I know what the split is?
Ask for it on the invoice. Most preparers can break the fee by the forms they produced — Schedule C, Schedule SE and Form 8829 on one side, Form 1040 and Schedule A on the other. It is a reasonable request and it takes them a minute.
What else belongs on line 17?
"Fees charged by accountants and attorneys that are ordinary and necessary expenses directly related to operating your business." Bookkeeping, business legal advice, contract drafting, a review of your client agreement.
Are legal fees always deductible?
Not always in the year you pay them. Fees incurred in acquiring an asset generally become part of the cost of that asset rather than a current deduction, so they are recovered through depreciation instead. Where a legal bill relates to buying something, raise the treatment with your preparer before deducting it.
Does the line 17 deduction cut my self-employment tax?
Yes, and that sets it apart from several other deductions a self-employed person takes. Line 17 sits on Schedule C, so it reduces the net profit that self-employment tax runs on. The health insurance and retirement deductions sit on Schedule 1 and do not.
What if my preparer will not split the invoice?
Make a reasonable allocation yourself and record how you arrived at it — which forms were business, which were personal, and roughly what share of the work each represented. A documented method is defensible; a round number is not.
Do audit or representation fees count?
Where they relate to the business part of your return, they are ordinary and necessary expenses of operating the business on the same reasoning as the preparation fee. Where they relate to your personal return, they follow the personal half into the same dead end.

This article is for educational purposes only and does not constitute tax, legal, or financial advice. Consult a qualified tax professional about your situation.

Official sources