Non-deductible Licenses

• IRS regulations prohibit deducting personal license fees from income taxes. Personal license fees include the cost of a marriage license, a dog license and most personal driver's licenses.
  
  

Professional Licenses

• If a taxpayer is self-employed, she may deduct fees paid to a state or local government for a professional license, such as a doctor's, cosmetologist's or physical therapist's license, on Line 23 of Form 1040 Schedule C. If the taxpayer is employed by another person or business who does not reimburse her for the cost of her required professional license, then she may claim the professional licensing fee as an unreimbursed employment expense on Form 1040 Schedule A, Line 21. The license fees and other Schedule A deductions are deductible to the extent that they exceed 2 percent of her income.
  
  

Business Licenses

• Businesses may deduct the cost of business operational licenses, such as hazardous waste hauling licenses, liquor licenses or entertainment licenses, as a corporate operational expense for corporations. A sole proprietorship enters these deductions on Schedule C.
  
  

Vehicle Registration Fees

• If your personal vehicle registration fees are based on your car or truck's value, then the IRS considers it to be a tax, which is deductible on Form 1040. If all vehicle owners in your state are taxed the same, or the registration amount is based on vehicle weight, then this fee is not tax deductible. Registration fees for business or fleet vehicles are deductible operating expenses of that business.
  
  

Miscellaneous Licenses

• Any number of license fees may be deductible either on Schedule C as business expenses or on Schedule A as unreimbursed employment expenses. These may include firearms licenses for armed security personnel, commercial drivers licenses for truckers or home baking licenses for caterers or bridal-cake bakers.
  
  

Withholding Fees

• If an employer pays licensing fees for an employee, then the employer can deduct the fee as a business operations expense, but the employee cannot take a tax deduction for the fee. If, however, the employer withholds the amount for the license fee from an employee's paycheck, the employee must claim that amount as income, and then claim the license fee as an unreimbursed employment expense on Form 1040 Schedule A.