Can I Deduct Accountant Fees?

October 27, 2022 by Steve Banner, EA, MBA
Typing on a Calculator

It used to be that accountant fees for preparing your individual tax return were deductible. But alas, that is no longer the case for tax years 2018 through 2025. Whether that restriction will be extended beyond 2025 remains to be seen; however, there are still a number of situations in which you can deduct the accountant fees you paid.

For example, Nebraska resident, Marion, has been thinking far into the future about her plans for retirement. She has enjoyed visiting the Florida Keys and loves the idea of retiring there. She is not quite sure how to make this happen because rent is expensive and so is the cost of buying real estate. The idea just swirls around in her head, and she takes no action – until one cold winter’s day when she reads a famous Chinese proverb: “A journey of a thousand miles begins with a single step.” Even though Key West is more than a thousand miles from Nebraska, the combination of these wise words and the howling wind outside are all the inspiration she needs to start thinking about buying a rental property for herself. After much searching online, she finds a suitable duplex property and, before she knows it, she has taken the first few steps toward the journey of turning her “Vision 2050” dream into a reality.

She will, of course, have to pay a number of professional fees as part of the process of securing a mortgage and buying the property. This includes fees she pays to her accountant to have him review her finances and determine whether her long-term plan of eventually living in one side of the property and renting the other is viable. After receiving approvals from all parties, Marion is able to buy her dream home and instructs the property manager to advertise for tenants. Although Marion had never thought of herself as a businesswoman, she is now in business as a landlord – and the fees she paid to her accountant and the other professionals related to buying the property are deductible.

Marion decides to offer one side of the property as a long-term rental for local residents, while using the other side for short stays by out-of-town visitors. This allows her to take advantage of the higher seasonal rates paid by vacationers fleeing from the wintry weather of places like Omaha, but it also makes it challenging for Marion to keep track of the ongoing income and expenses of her rental business. Fortunately, her accountant can offer the type of bookkeeping services she needs, and his fees for this work are deductible.

Up until now, Marion has always prepared her own tax return but, after her first year in business, she realizes she needs help. The changes to her personal situation, courtesy of her Vision 2050 project, have made things much more complicated for her – especially since she took a couple getaway trips to Key West to stay in the short-term side of the duplex when it was vacant. Her accountant can take care of her tax return for her, but he also informs her that he will itemize his fee into two parts: a fee for the business portion and a fee for the personal portion. The fee for the business part of the return is deductible, but the personal part is not.

As this example of Marion has shown us, accountant fees for a business purpose are generally deductible, but when those fees are incurred for a personal purpose, they are currently not deductible. And by the way, the cost of hurricane and flood insurance is also deductible!

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Steve Banner, EA, MBA
Tax Content Developer

 

Steve Banner began his career in the field of income tax in 1977 and has since gathered business experience in a variety of countries and cultures. In addition to the United States, he has lived and worked for extended periods in Australia, Saudi Arabia, Canada, and Sweden. Along the way he studied Adult Education and earned a Bachelor of Education, Master of Educational Administration, and MBA. He joined TaxAudit in 2016, where he is a Tax Content Developer.


 

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