Deductions help to lower your annual taxable gross income, thereby reducing the amount you have to pay in tax. Software packages can help you to identify as many deductions as possible so that you can save as much money as possible. Fortunately, the software package itself is also tax deductible. Make sure you fill out your tax form correctly so that you pay deduct your tax preparation software.
As filing federal income taxes became more difficult, people increasingly turned to professionals to prepare the forms for them. It struck many as unfair that they had to pay money just to file their income taxes, so the expense was made tax deductible.
A tax deduction allows a person to reduce his taxable income by that amount. Thus, the amount of taxes owed can be reduced with multiple tax deductions.
The entire cost of tax preparation software is tax deductible as a "miscellaneous deduction." A $100 software package would provide a $100 deduction, for instance.
A tax deduction does not reduce taxes by the same amount as the deduction. That is a what a tax credit is. If a person deducts a $100 software package, her taxes are not reduced by $100. Rather, their taxable income is reduced by $100.
The deduction for tax preparation software is taken under the "miscellaneous deductions" section. Miscellaneous deductions can only be claimed to the extent that they exceed 2 percent of income. Thus, although tax preparation software is tax deductible, a specific taxpayer may not get the benefit of the deduction if the miscellaneous deductions do not total more than 2 percent of income.
Deducting the cost of tax preparation software can lower a person's overall taxable income. The deduction reduces the cost of the software by the amount of the tax savings.
- Jupiterimages/Photos.com/Getty Images