Returns were initially filed as 1065 partnership for LLC, and 1040 for married couple. CPA prepared amended 1040 return - no LLC return. Can 100% of CPA fee for amended 1040 be deducted as sole proprietorship's business expense or must expense still be split 50/50, 1/2 sole proprietorship, 1/2 married couple?

Generally speaking, a CPA' s fees for the preparation of personal tax returns are deducted on Schedule A line 22, under Tax preparation fees. However, these fees are subject to the 2% Adjusted Gross Income Limitations.

Usually, most average taxpayers are unable to be obtain any deductions just on this item unless of course they have unreimbursed employee business expenses, casualty and theft losses.

So, it is prudent to determine what portion of the CPA tax preparation fees pertain to the LLC versus the Personal tax return. From what I can gather from your question is that the return was initially filed as a 1065 and 1040. Then an amended tax return was filed to report the activity presumably as a Single Member LLC and the entire business activity was reported on Schedule C.

If this is the scenario, then I would definitely deduct the fees for the preparation related to the original 1065 tax return along with a portion of the amended tax return that pertains to the filing of the Schedule C that reports the business income and expenses.

Your percentage breakdown of 50/50, in my opinion, appears reasonable considering that a Schedule C is relatively more expensive schedule to prepare along with the related Schedule SE.

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Hello, and thank you for your reply. The purpose of filing an amended 1040 was to completely eliminate any filing by the LLC. ALL business income was recharacterized as Schedule C sole proprietorship/Schedule SE. Thus the initial question remains to be answered - can the CPA fee be 100% deducted on Schedule C.

Is there something the CPA should have done to "void" the LLC return that was originally filed?

That is what I had thought! I suggest that you cannot deduct the entire cost for the amended tax return. Instead have the CPA itemize the fees for preparation of the various tax returns,Schedule C and the related Schedule SE along with any Schedule C consultation charges.

Then, I would deduct the sum of the total of the following expenses on Schedule C as Professional Fees for Accounting and Tax.

1. Cost of Original LLC Tax preparation.

2. Cost for Schedule C for the New Tax Return.

3. Cost of 50% of the Amended Tax Return.
It's never wise to deduct 100% for business as you are amending a personal tax return! But, there is a justification of deducting a portion of the fees that are applicable to the personal tax return.

4. Tax Consulting Charges pertaining to the Business.

Is there something the CPA should have done to "void" the LLC return that was originally filed?
This is interesting! I have never encountered this problem before. I would suggest that the CPA at least write a letter requesting, "that the LLC tax return should be considered null and void, as taxpayer has erroneously reported the transactions on the LLC. In fact, the Taxpayer has amended his personal tax return, to include all the business transactions related to his business on the Schedule C of his personal tax return." I would also attach a copy of the amended personal tax return to this letter, which would show to the IRS that indeed you have filed the tax return, and reported all the transactions on Schedule C.

It seems that it is a good practice to request your CPA to itemize his Tax Preparation fee on your 1040 Personal tax return especially if you have Schedule C business!

This way at least you can deduct at least a portion of fees allocable to your schedule C, rather than deducting the tax preparation fees on Schedule A, which would subject it to 2% AGI limitation rules!