Where should really an individual taxpayer deduct tax preparation costs? The clear answer could be on Schedule A of Form 1040 as a miscellaneous deduction. Are tax preparation costs deductible only on Schedule A for all taxpayers? Thankfully, the answer is no.
Deducting tax preparation charges on Schedule A will offer little or no benefit for most taxpayers for the reason that the total miscellaneous deductions ought to exceed two percent of the taxpayer’s adjusted gross income to supply any advantage. In addition, the taxpayer’s total itemized deductions have to commonly exceed the normal deduction amount to supply any tax advantage.
The IRS ruled in Rev. Rul. 92-29 that taxpayers may deduct tax preparation charges associated to a enterprise, a farm, or rental and royalty revenue on the schedules where the taxpayer reports such income.
A taxpayer who is self-employed may deduct the portion of the tax preparation fees associated to the company, including schedules such as depreciation schedules, on Schedule C of Type 1040 as a business enterprise expense. The tax preparation charges 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 charges connected to the farm on Schedule F of Kind 1040. The tax preparation charges 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 Type 1040 would deduct the portion of the tax preparation charges related to the rental and/or royalty income on Schedule E. The tax preparation fees deducted on Schedule E save the taxpayer revenue tax. On the other hand, the tax preparation fees deducted on Schedule E do not save the taxpayer any self-employment tax since the rental and/or royalty earnings 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 Kind 1040. The tax preparer must offer a statement to the taxpayer that indicates how substantially of the tax preparation fee was associated to the taxpayer’s small business, farm, and/or rental and/or royalty earnings. The taxpayer may possibly deduct the remainder of the tax preparation fee only on Schedule A.
If the tax preparer does not deliver the taxpayer with a detailed statement displaying how significantly of the tax preparation charge was for the taxpayer’s enterprise, farm, and/or rental and/or royalty earnings, the taxpayer shoud ask the tax preparer for an itemized statement. If tax preparation redlands ca will not provide an itemized statement, the taxpayer ought to use a reasonable allocation. In that case, the taxpayer ought to seriously look at working with a distinctive tax preparer next year.
Here is an example. Assume that the taxpayer is self-employed and also owns rental true estate. The tax preparation fee 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 small business, $200 was related to the rental actual estate, and the remainng $one hundred was connected to other parts of the taxpayer’s revenue tax return. The taxpayer paid the $600 in February 2006.
On the taxpayer’s income tax return for 2006, the taxpayer might deduct the $600 tax preparation fee as follows: $300 on Schedule C, $200 on Schedule E, and $100 on Schedule A as a miscellaneous deduction.