Where ought to an individual taxpayer deduct tax preparation charges? The obvious answer may well be on Schedule A of Type 1040 as a miscellaneous deduction. Are tax preparation charges deductible only on Schedule A for all taxpayers? Fortunately, the answer is no.
Deducting tax preparation costs on Schedule A will give little or no advantage for most taxpayers due to the fact the total miscellaneous deductions have to exceed two percent of the taxpayer’s adjusted gross income to present any benefit. In addition, the taxpayer’s total itemized deductions have to typically exceed the regular deduction quantity to deliver any tax advantage.
The IRS ruled in Rev. Rul. 92-29 that taxpayers may well deduct tax preparation fees related to a organization, a farm, or rental and royalty earnings on the schedules exactly where the taxpayer reports such revenue.
A taxpayer who is self-employed may deduct the portion of the tax preparation charges connected to the enterprise, including schedules such as depreciation schedules, on Schedule C of Form 1040 as a business enterprise expense. The tax preparation costs 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 portion of the tax preparation costs connected to the farm on Schedule F of Type 1040. The tax preparation fees deducted on Schedule F save the taxpayer income tax and self-employment tax.
A taxpayer who has rental and/or royalty revenue reported on Schedule E of Form 1040 would deduct the portion of the tax preparation fees connected to the rental and/or royalty revenue on Schedule E. Remote tax preparation deducted on Schedule E save the taxpayer income tax. However, the tax preparation fees deducted on Schedule E do not save the taxpayer any self-employment tax since the rental and/or royalty income reported on Schedule E is not topic to self-employment tax.
A taxpayer may not deduct all of the tax preparation fees on Schedules C, E, and F of Type 1040. The tax preparer ought to provide a statement to the taxpayer that indicates how much of the tax preparation charge was related to the taxpayer’s enterprise, farm, and/or rental and/or royalty revenue. The taxpayer may well deduct the remainder of the tax preparation charge only on Schedule A.
If the tax preparer does not provide the taxpayer with a detailed statement showing how substantially of the tax preparation fee was for the taxpayer’s small 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 present an itemized statement, the taxpayer need to use a affordable allocation. In that case, the taxpayer really should seriously consider using a unique tax preparer next year.
Right here is an instance. Assume that the taxpayer is self-employed and also owns rental genuine estate. The tax preparation charge for the taxpayer’s Form 1040 and connected schedules for 2005 was $600. The tax preparer states that of the $600 total charge, $300 was connected to the taxpayer’s business, $200 was connected to the rental true estate, and the remainng $100 was associated to other parts of the taxpayer’s income tax return. The taxpayer paid the $600 in February 2006.
On the taxpayer’s revenue tax return for 2006, the taxpayer may deduct the $600 tax preparation fee as follows: $300 on Schedule C, $200 on Schedule E, and $one hundred on Schedule A as a miscellaneous deduction.