Where to Deduct Tax making ready Fees
Where should an private taxpayer deduct tax establishment fees? The distinct write back might be on program A of Form 1040 as a miscellaneous deduction. Are tax establishment fees deductible only on program A for all taxpayers? Thankfully, the write back is no.
Where to Deduct Tax making ready Fees
Deducting tax establishment fees on program A will contribute itsybitsy or no advantage for most taxpayers because the total miscellaneous deductions must exceed two percent of the taxpayer's adjusted gross revenue to contribute any benefit. In addition, the taxpayer's total itemized deductions must regularly exceed the acceptable deduction whole to contribute any tax benefit.
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 revenue on the schedules where the taxpayer reports such income.
A taxpayer who is self-employed may deduct the quantum of the tax establishment fees related to the business, including schedules such as depreciation schedules, on program C of Form 1040 as a company expense. The tax establishment fees deducted on program C save the taxpayer revenue tax and self-employment tax.
A taxpayer who is self-employed as a farmer would deduct the quantum of the tax establishment fees related to the farm on program F of Form 1040. The tax establishment fees deducted on program F save the taxpayer revenue tax and self-employment tax.
A taxpayer who has rental and/or royalty revenue reported on program E of Form 1040 would deduct the quantum of the tax establishment fees related to the rental and/or royalty revenue on program E. The tax establishment fees deducted on program E save the taxpayer revenue tax. However, the tax establishment fees deducted on program E do not save the taxpayer any self-employment tax because the rental and/or royalty revenue reported on program 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 contribute 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 program A.
If the tax preparer does not contribute 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 contribute an itemized statement, the taxpayer should use a inexpensive allocation. In that case, the taxpayer should seriously reconsider using a separate 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 revenue tax return. The taxpayer paid the 0 in February 2006.
On the taxpayer's revenue tax return for 2006, the taxpayer may deduct the 0 tax establishment fee as follows: 0 on program C, 0 on program E, and 0 on program A as a miscellaneous deduction.
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