Tax Deductible fees for services

Barry Dolowich writes: Question: Early this year, I was fortunate enough to come into a substantial amount of money which I invested in a managed brokerage account. I have and will be paying large quarterly investment management fees. I also paid my attorney and accountant for estate and income tax planning. Are these fees deductible and if so, how do I deduct them?

Answer: You may deduct your payment of fees charged for the services listed below, subject to the 2% adjusted gross income limitation for miscellaneous itemized deductions:

Preparing your tax return or refund claim involving any tax; preparing and obtaining a private Internal Revenue Service ruling, including filing fees; representing you before any examination, trial, or other type of hearing involving any tax. The term "any tax" includes income, gift, property, estate, or any other tax, whether the taxing authority be federal, state, or local; legal expenses related to your job as an employee or to investment activities; an allocated portion of legal fees paid to an attorney to press a claim for disputed benefits, such as disability and Social Security benefits;fees related to the tax planning portion of your estate planning; allocated legal fees incurred in connection with disputes or actions to increase or maintain taxable alimony by the alimony recipient; investment fees and related investment expenses.

Certain legal and accounting expenses incurred in connection with business and rental activities may be deducted directly and  without limitation on their respective tax return schedules, and not as miscellaneous itemized deductions.

For example, if you are operating a business as a sole proprietorship reporting your business income on Form 1040, Schedule C, then you would be able to deduct legal and accounting expenses incurred in connection in the reasonable and ordinary operation of your business directly on Schedule C. Furthermore, if you hired an attorney to evict a delinquent tenant of a Schedule E rental property, the fees incurred would be deductible directly on your Schedule E.

Planning tip: If appropriate, deductible fees may also be allocated throughout various tax return schedules. For example, tax return preparation fees may be allocated among Schedules C and E (without being subject to adjusted gross income limitations), and Schedule A (miscellaneous itemized deductions subject to limitations).