Where should an individual tax payer deduct tax preparation fees? The obvious answer could be on Schedule A of Form 1040 as a miscellaneous deduction. Are income tax planning fees deductible only on Plan A for many taxpayers? Fortunately, the answer is no.
Deducting tax planning fees on Plan A will provide virtually no benefit for most taxpayers since the total miscellaneous write offs must exceed two % from the taxpayer’s adjusted gross income to offer any advantage. Additionally, the taxpayer’s complete itemized write offs must usually exceed the standard deduction figure to offer any tax advantage.
The IRS ruled in Rev. Rul. 92-29 that taxpayers may deduct tax preparation charges related to an organization, a farm, or rental and royalty earnings around the schedules where tax payer reports such income.
A taxpayer who may be personal-utilized may subtract the portion of the income tax planning fees associated with the organization, such as agendas such as devaluation agendas, on Routine C of Form 1040 as being a business expense. The income tax planning charges subtracted on Routine C conserve the tax payer income tax and personal-employment income tax.
A taxpayer who may be self-employed as being a farmer would subtract the portion of the tax planning fees related to the farm on Schedule F of Form 1040. The income tax preparation charges subtracted on Schedule F save the taxpayer tax and self-employment income tax.
A tax payer who has rental or royalty earnings noted on Routine E of Type 1040 would deduct the part of the income tax preparation fees linked to the rental or royalty income on Schedule E. The income tax preparation charges subtracted on Schedule E conserve the tax payer taxes. Nevertheless, the income tax planning charges subtracted on Schedule E usually do not save the taxpayer any personal-employment income tax since the rental and royalty income noted on Routine E will not be subject to self-employment income tax.
A tax payer may well not deduct all the tax planning fees on Schedules C, E, and F of Type 1040. The tax preparer must provide an announcement for the taxpayer that suggests how much of the tax planning fee was associated with the taxpayer’s company, farm, and rental or royalty earnings. The tax payer may deduct the remainder of the income tax planning charge only on Schedule A.
If the income tax preparer does not give you the tax payer with a comprehensive statement displaying how much of the tax planning fee was for that taxpayer’s company, farm, and rental and royalty income, the tax payer ought to request the income tax preparer to have an itemized declaration. If the income tax preparer will never offer an itemized statement, the tax payer should utilize a lpiahg allocation. If so, the taxpayer ought to seriously consider utilizing a different tax preparer next season.
Is a good example. Believe that the taxpayer is self-employed and also owns rental real estate. The income tax planning fee for your taxpayer’s Form 1040 and associated agendas for 2005 was $600. The tax preparer claims that of the $600 complete fee, $300 was related to the taxpayer’s business, $200 was linked to the rental real estate, and also the remainng $100 was linked to other areas of the taxpayer’s taxes return. The tax payer paid the $600 in Feb . 2006.
On the taxpayer’s taxes return for 2006, the taxpayer might deduct the $600 income tax planning charge as follows: $300 on Routine C, $200 on Routine E, and $100 on Plan A as being a miscellaneous deduction.