For small-business owners, the cost of an accountant represents a significant expense to comply with federal disclosure and business. In an effort to help minimize the impact of this expense, the tax code provides for deductions related to these expenditures. For personal tax preparation, the use of an accountant may be deductible depending on how much the person earned in that year. As for the small-business owner, the use of an accountant most likely will be fully deductible.
When to Deduct
If you use an accountant to prepare your taxes, the expense may be deductible depending on your income and some other expenses. You deduct the tax preparation fees on the return for the year in which you pay them. This means that the cost of preparing the prior year’s return is the amount used for the current year’s deductions.
How to Apply the Deduction
Tax preparation expenses are part of a class of deductions that is limited by a taxpayer’s adjusted gross income. Tax preparation fees, along with expenses associated with working as an employee, generating income or claiming a tax refund, are only deductible if the sum of all those expenses exceeds 2 percent of adjusted gross income. The amount that is deductible is the excess of that class of expenditures over the 2 percent value. You can only claim this benefit from tax preparation fees by itemizing your deductions.
Accountant for Small Business Purposes
The services of an accountant or bookkeeper for a small business will almost always be deductible. In general, all expenses incurred that are ordinary and necessary for carrying out a trade or business will be deductible. This means that all business costs that are helpful to the organization’s profit motive, related to a normal activity companies engage in and incurred after the business officially starts are deductible. The use of an accountant to keep track of financial data fits these criteria, so long as the expenses are incurred after the business starts operation. To qualify for this deduction, you must itemize your deductions. There is no limit as to how much of accounting expenses related to a small business you can deduct.
Tips for Deductions
Proper documentation in federal tax matters is always important. If you claim a deduction based on the cost of an accountant’s services, it is important that you keep the receipts with your tax return in case of an audit. In case of complicated tax issues, it is always advised to consult with a certified public accountant (CPA) or lawyer to ensure compliance.
John Cromwell specializes in financial, legal and small business issues. Cromwell holds a bachelor's and master's degree in accounting, as well as a Juris Doctor. He is currently a co-founder of two businesses.