Personal bookkeeping expenses

[appelman]

I am being given a very hard time by a client who brought in a high class bookkeeper, flown from the east coast to San Francisco, to spend two weeks organizing her records dating back to twenty years or so, and doing general bookkeeping for her, at a cost of 2K plus transcontinental transportation. My client is not running a business, and most of her investments are managed by Wells Fargo Advisers, but least some of her records involve investment and tax matters. She wants to deduct the whole cost as an investment expense, and the bookkeeper tells her that everybody does that. I feel that most, if not all of it is a personal expense of organizing her affairs, and the most she could do would be to allocate a portion to investment and taxes. This wouldn't do her much good, because of the threshold for miscellaneous itemized deductions. Am I being excessively scrupulous?

[JohnH]

Absent an allocation by the bookkeeper, you have no information upon which to make an allocation between business and personal. And since you know that some of it must have been personal, you need the person doing the billing to make that distinction for you. Presumably they know where they spent their time.

I'd be inclined to tell the client there's no deduction here unless they get a breakdown of the invoice from the bookkeeper. (and that needs to Be one which will pass the laugh test)

[Gary2]

What sort of records would she have that don't count? The fact that it's personal and not business or investment doesn't seem relevant. After all, the entire cost of tax preparation is deductible, subject to the 2% floor.

What if it's a box containing 20 years of miscellaneous bills, among which is the bill for putting an addition onto the house? You pay someone to go through the box to find the bills that are worth keeping. How do you calculate the deductible portion? None of it? All of it? Based on number of pieces of paper?

[Burke]

It is relevant because personal expenses are not deductible as a misc ded on Sche A. There is a long list in TTB, 4-24. Investment expenses are deductible and are classified as "......amts paid to produce, manage, or protect property held for earning income." So it depends on what was actually done. Tax preparation is specifically allowed as it is associated with the payment of income tax. Also, I would venture to say whether it was "ordinary and necessary" to fly an expert across the country to do this might be questioned. The whole thing may also be disallowed for AMT purposes depending on her income. Sounds substantial.

[ChEAr$]

And certainly 20 years of records have to be overwhelmingly personal in nature.

The bookkeeper might maintain it's deductible, but then home improvement contractors also tell you that adding a room is deductible.

[Gretel]

Interesting situation. I would deny any allocated costs for periods were the statute of limitation expired unless your client fears criminal investigation, then to have to kick her but.

However, some clients don't have a clue what really is needed for tax prep (I have several who I was not able to train the last 10 years) and bring in 10 times as much paperwork then I need. Of course I charge them for the additional time, regardless if it was a tax paper or a love letter that went through my hands.

I would get a reasonable estimate from the accountant how much time he spend for the last 3 (IRS) or ?? (State) years. That part of the fee is tax prep fee.

If in addition she has lots of income from investments, than maybe another part of his fees can be allocated to investment fees. $2,000 is really not that much if you think that a lawyer spitting out a revocable trust easily gets $5,000 to $10,000. I know that is not deductible, just looking at $$ here.

[JG EA]

Yes, very interesting as I was once the bookkeeper for someone who had me do the same thing. I put things into "accounts" some investment, some business, and most personal. I wondered what would happen to the final product, so in my letter I clearly stated that I made no determination while doing this project as to what was or was not tax related.

[BHoffman]

appelman - I wonder if you're getting the whole story. Why would anyone pay to transport a bookkeeper across the country, when certainly there are bookkeepers in SF? So, would the transportation / lodging costs be "ordinary and necessary"?

I wonder if this "bookkeeper" is a friend or relative.

Is your client going to issue a 1099Misc to the bookkeeper?

Is any of it going to be deductible after the 2% threshold?