Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.
Q: Are you allowed to deduct the cost of tax preparation?
A: Tax preparation fees incurred by an individual are deductible, but you must determine whether the cost is incurred because of business or nonbusiness activities.
If part of the fee is related to preparation of your Schedule C or Schedule E (rental), then those amounts are deductible on those schedules since they are considered "business" expenses. The part of the fee attributable to nonbusiness activities such as preparation of Schedules A, B, D, etc., would be deductible on Schedule A subject to the 2 percent of your adjusted gross income limitation. You must make a good-faith effort to determine allocation of tax preparation fees between business and nonbusiness activities.
Q: How long do you have to hold on to your tax returns? Is it three or seven years?
A: You should keep your return and records for a minimum of three years from the due date of the return. For example, a return for 1991, due April of 1992, should be kept until at least April 1995. However, if the IRS believes you had income that was not reported, they can go back six years to question a return. Therefore, keeping a return until six years after the due date is wise.
The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.