tax preparation fees

[morrisliberty]

hello,

I have client with a Schedule C, E, and A on his Form 1040 and he is able to itemize and he is able to take advantage of the 2% miscellaneous itemizied deduction. What is the best way to allocate tax preparation fees to each Schedule and is there a correct way according to IRS? Are there more than one allocation method which can be used?

[mwcpa]

Tax preparation fees related to the preparation of a personal income tax return should be reported as a schedule A miscellaneous deduction subject to the 2% AGI limit.
Fees related to the administration, record keeping, compiling of data related to the date required to be reported on schedule C and E should be reported appropriately on such forms as an ordinary and necessary expense of the business.

There is no special way to allocate such cost, one needs to be reasonable if the fee is all encompassing.

The IRS would desire that the cost be reflected as a schedule A expense (2% haircut, AMT, etc), the taxpayer would desire it be reported as schedule C (15.3% SE tax, no 2% haircut, no AMT issues), being "reasonable" in an approach is best, there is NO right answer if the tax preparer is preparing the individual tax filings, schedule C compiling, schedule E compiling, etc.

[morrisliberty]

hello,

thank you for reply. I agree with everything but I was reading Private Letter Ruling Number 9126014 March 28 1991 and the ruling states in my opinion the Schedule C and E tax preparation fees should be included on Schedule A and not allocated on each schedule C and E. Is the IRS position tax preparation fees for Sch C and E should be included on Schedule A if you are able to itemize. Should a large national tax preparation company have a uniform policy or tax software allocating tax preparation fees based on cost of preparing form or forms related to Schedule C and Schedule E and Schedule A?

[mwcpa]

I cannot speak to what national chains do, I can only speak to what the law is, give general guidance on "best practice" and tell you what I see

...the letter ruling relates only to the facts contained within the ruling for the person it was written to...but it can serve as a guideline....

just remember, in whatever position your client takes, document, document, document.... and also remember, where do pigs end up.... slaughter.... so if you allocate between A, C and E have a basis for it, not just some random allocation... in 99% of the tax filings I see, the tax prep fees are taken 100% on schedule C, that does not mean it is correct... in IRS examinations involving schedule Cs I have rarely seen this challenged, as normally it is a minor cost charged to the business....

[Taxman10]

May 5, 2011 12:00:13 GMT -5 mwcpa said:

I cannot speak to what national chains do, I can only speak to what the law is, give general guidance on "best practice" and tell you what I see

...the letter ruling relates only to the facts contained within the ruling for the person it was written to...but it can serve as a guideline....

just remember, in whatever position your client takes, document, document, document.... and also remember, where do pigs end up.... slaughter.... so if you allocate between A, C and E have a basis for it, not just some random allocation... in 99% of the tax filings I see, the tax prep fees are taken 100% on schedule C, that does not mean it is correct... in IRS examinations involving schedule Cs I have rarely seen this challenged, as normally it is a minor cost charged to the business....

I had an agent allocated $300 of a $1300 fee from the sched C to A. It wasn't a big deal for the taxpayer, but as MW stated, usually it's 100% on the C.

[TheOtherMe]

The places where I have worked were not national chains. We did not put 100% on Schedule C or E. We did an allocation based on time, as the fee was based on time.

One preparer charged by the form, so we allocated tax prep fees based on the fee schedule.

[activeonlooker]

Professional judgment. We generally look at the significance of the particular schedule to the return as a whole. If sch C is 95% of income, the majority of tax prep fees go there. Some portion is always put to schedule A.