Where to Deduct Tax preparing Fees

No.1 Article of Irs Tax Form 1040

Where should an individual taxpayer deduct tax establishment fees? The sure answer might be on schedule A of Form 1040 as a miscellaneous deduction. Are tax establishment fees deductible only on schedule A for all taxpayers? Thankfully, the answer is no.

Deducting tax establishment fees on schedule A will furnish microscopic or no benefit for most taxpayers because the total miscellaneous deductions must exceed two percent of the taxpayer's adjusted gross earnings to furnish any benefit. In addition, the taxpayer's total itemized deductions must normally exceed the acceptable deduction amount to furnish any tax benefit.

Irs Tax Form 1040

The Irs ruled in Rev. Rul. 92-29 that taxpayers may deduct tax establishment fees related to a business, a farm, or rental and royalty earnings on the schedules where the taxpayer reports such income.

Where to Deduct Tax preparing Fees

A taxpayer who is self-employed may deduct the part of the tax establishment fees related to the business, along with schedules such as depreciation schedules, on schedule C of Form 1040 as a business expense. The tax establishment fees deducted on schedule C save the taxpayer earnings tax and self-employment tax.

A taxpayer who is self-employed as a farmer would deduct the part of the tax establishment fees related to the farm on schedule F of Form 1040. The tax establishment fees deducted on schedule F save the taxpayer earnings tax and self-employment tax.

A taxpayer who has rental and/or royalty earnings reported on schedule E of Form 1040 would deduct the part of the tax establishment fees related to the rental and/or royalty earnings on schedule E. The tax establishment fees deducted on schedule E save the taxpayer earnings tax. However, the tax establishment fees deducted on schedule E do not save the taxpayer any self-employment tax because the rental and/or royalty earnings reported on schedule E is not field to self-employment tax.

A taxpayer may not deduct all of the tax establishment fees on Schedules C, E, and F of Form 1040. The tax preparer should furnish a statement to the taxpayer that indicates how much of the tax establishment fee was related to the taxpayer's business, farm, and/or rental and/or royalty income. The taxpayer may deduct the remainder of the tax establishment fee only on schedule A.

If the tax preparer does not furnish the taxpayer with a detailed statement showing how much of the tax establishment fee was for the taxpayer's business, farm, and/or rental and/or royalty income, the taxpayer shoud ask the tax preparer for an itemized statement. If the tax preparer will not furnish an itemized statement, the taxpayer should use a cheap allocation. In that case, the taxpayer should seriously think using a dissimilar tax preparer next year.

Here is an example. Assume that the taxpayer is self-employed and also owns rental real estate. The tax establishment fee for the taxpayer's Form 1040 and related schedules for 2005 was 0. The tax preparer states that of the 0 total fee, 0 was related to the taxpayer's business, 0 was related to the rental real estate, and the remainng 0 was related to other parts of the taxpayer's earnings tax return. The taxpayer paid the 0 in February 2006.

On the taxpayer's earnings tax return for 2006, the taxpayer may deduct the 0 tax establishment fee as follows: 0 on schedule C, 0 on schedule E, and 0 on schedule A as a miscellaneous deduction.

Where to Deduct Tax preparing Fees