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Tax return preparation costs are "above-the-line" deductions.

Any amount paid by an individual for preparing the business portion of income tax returns and resolving tax deficiencies for a sole proprietorship, including litigation expenses, can be deducted as business expenses.

Although it is common practice for preparers to list their fees as business expenses of the client's sole proprietorship, the IRS recently had taken a hard line regarding deduction of expenses for return preparation and tax advice. A new ruling reversed that position.

In the ruling, an individual ran a consulting business as a sole proprietorship. She paid a tax return preparer $500 to prepare her Form 1040. $200 of the fee was allocable to preparing schedule C and $300 was for preparing the Form 1040, Schedule A and schedule B. During the same year, the tax payer paid the preparer an additional $800 to help resolve a tax liability dispute with the Service that involved the sole proprietor's business income. The Service permitted the deductions, including the $800 fee for resolving the tax deficiencies and the $200 for preparing the previous year's Schedule C, on Schedule C and the remaining $300 as an individual itemized deduction on schedule A subject to the 2% floor.

In addition to fees paid for preparing the schedule C, taxpayers can deduct expenses for Schedule E and Schedule F on those forms under this ruling.
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Title Annotation:Client Report
Publication:The National Public Accountant
Date:Jun 1, 1992
Previous Article:Accounting for income taxes: Statement of Financial Accounting Standards No. 109.
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