edwardWhile it isn’t uncommon for small business owners to see their bill for accounting services as just a cost associated with running a business, few know that there may actually be a way to write those fees off.
Depending on why you’re paying fees to a professional service provider such as Coral Springs accountants, you may be able to deduct the cost of accounting services.
Here are the rules put in place by the IRS that determines whether accounting costs are deductible for businesses:
- Business expenses
The law states that expenses related to that business can be deducted provided they are both ‘ordinary and necessary.’ So if using accounting services helps you run your business or report your finances, it should be deductible.
- Investment expenses
Even if you don’t run a business, but you own investments or property that generate income, some fees associated with managing these may also be deductible.
- Startup costs
For entrepreneurs who’ve just started a business, if they used accounting services to help them form it as an official entity, or to help them create their books for instance, they should be able to deduct these as startup expenses.
Accounting fees that are NOT deductible
For the average person who uses an accountant to help them prepare and file their individual return, but who isn’t operating a business and who doesn’t have any investment activity, these fees are not deductible under federal law.
Why it’s important to split the bill
For tax purposes, an accounting service that puts personal and business services into the same invoice, makes things much more complex.
Only an itemized bill showing what portion of the total fee went towards investment or business activities, will enable you to claim the deduction without raising questions from the IRS.
Be sure to document everything
To protect your deductions as a business person, you need to keep all invoices, receipts and detailed breakdowns to show the IRS exactly what you have paid for, and why it’s relevant to your business or your investments.
The IRS perspective
All accounting, bookkeeping and tax services for your business are treated as deductible by the IRS, and for activities related to investments, fees associated with the production or management of taxable income, may also be deductible.
The big picture
Accounting fees are best thought of as being just like any other legitimate business expense: if you can prove (through detailed breakdowns and itemized bills etc) that tax planning in Coral Springs helped you earn, manage, or protect income from either a business or an investment, you stand a strong chance of being able to deduct them. Follow the tips outlined above to minimize stress during tax season and reduce your liability.
Remember that tax laws can change, and often, and although your accountant or bookkeeper will keep themselves up-to-date with any changes that may affect your tax return, it pays to keep yourself aware of changes too, if only to help you avoid unpleasant surprises during tax season. You might not appreciate having to pay your accounting expenses, but handle them in the right way, and they could actually work in your favor.
