retired and deducting professional license expenese

[joanmcq]

Taxpayer is being audited on a self-prepared return for employee business expenses. Not surprising, since they had $6700 in biz expenses and $426 in wages. They are both retired, but are keeping up their professional licenses and deducted CPE, mileage and travel expenses for CPE, and the license costs (plus other stuff). Wife maintains social work license necessary to do charitable work, and husband maintains licenses he may use in the future (one is for for martial arts training license..and he is now teaching..and other is professional engineer license). Could these expenses still be taken as miscellaneous expenses on line 22 rather than as employee biz expenses (since they are not employees). Any retired CPAs or EAs out there still maintaining your licenses that know this?

[Luis Mopeo]

Taxpayer is being audited on a self-prepared return for employee business expenses. Not surprising, since they had $6700 in biz expenses and $426 in wages. They are both retired, but are keeping up their professional licenses and deducted CPE, mileage and travel expenses for CPE, and the license costs (plus other stuff). Wife maintains social work license necessary to do charitable work, and husband maintains licenses he may use in the future (one is for for martial arts training license..and he is now teaching..and other is professional engineer license). Could these expenses still be taken as miscellaneous expenses on line 22 rather than as employee biz expenses (since they are not employees). Any retired CPAs or EAs out there still maintaining your licenses that know this?

Really. Retired and spending $6,700 keeping up a license. If you were talking $670, that might even be a stretch. But $6,700?

They have CPE courses on cruise ships, they have CPE courses in Hawaii, and CPE courses in Vegas. Just how did they rack up $6,700 in mostly travel costs (how do I know it's mostly travel costs?)

How much did they spend keeping up their licenses when they were working? Better check the returns for the prior couple of years. You can bet the auditor will.

Is it realistic that retired people will spend $6,700 on keeping up licenses?

Sorry, it sounds to me like something a travel agent might tell them.

[joanmcq]

Not all of it was for the upkeep of the licenses. Thats the only part I can think of justifying.

[geekgirldany]

If the income made on the Schedule C was directly related to either the husband or wife self employed income then the license renewals would be deductible. I would say her license for social work possibly could be a deducted as a chartiable contribution if that is what she uses it for. On his two licenses, I would say only one would be deductible towards any income he earned using that license(or maybe she if not the husband). The other one I would consider personal and non deductible. Neither were employees so they are not deductible as a employee expense on Schedule A.

[joanmcq]

There was no Sch C for 2005, when they deducted the expenses. I think he had income in 2006 for the martial arts license, but not in 2005.

[ChEAr$]

I can't see any deductions for expenses NOT related to current productive activities,
viz. earning money.

I'll never put down renewal of nursing licenses in either state if she isn't still
working; esp if retired already and not working.

[Luis Mopeo]

With all due respect to all those who are posting opinions, I think in this case it's absurd to be nitpicking about what the Code says about whether expenses are ordinary and necessary or not.

For gosh darn sakes, we're talking about a $6,700 expense here. If the best skyhook you can grab is talking about keeping up a license, there's a serious problem that isn't going to be solved by quoting Code or Regs or Pubs.

It looks on the face like taxpayers are blatantly deducting personal expenses (or worse yet, making up numbers). There might be licenses that cost that much to keep up, but it's not going to be for retired people trying to keep their personal professional licenses.

No, you can't deduct the cost of retirement cruises, retirement travel to Hawaii, or retirement travel to Duluth. Unless an unexpected surprise in the way of facts presents itself, you're not dealing with gray areas that you might be able to convince an auditor about. You're dealing with taxpayers who thought, for whatever reason, they could write off personal expenses against income. Like I said, if the amount was $670, then a discussion about retired people keeping up their professional licenses might have merit. But that's not what it appears is going on here.

[joanmcq]

Look, not all of it will fly

Louis, I mentioned earlier that not all of the $6700 was for the licenses and CPE. A PORTION of it was. All I am trying to find out is if there is any basis for deducting professional licensing costs in a year in which one is currently retired. I happen to work with a lot of retirees that decided they didn't want to be retired anymore. Being as we are all CPAs and EAs I can see where one would want to keep up one's professional license until one decides they are definitely not going back to work. However, none of them fall into exactly this circumstance. What we are looking at is a few thousand dollars for classes and licensing. My seminars (and no, I don't take fancy cruises or even go to weekend seminars, or even drive out of town, but I do prefer live instruction, which tends to cost a bit more) do cost about a grand a year. So please stop berating anyone that is debating the question, which is...........is there a basis for deducting professional license upkeep in a year in which one does not actually work in that profession (or work much at all?)

[MAMalody]

From my perspective, the short answer is, NOT deductible.

The reality is, there is not concrete code or reg validation as you have put forth the information. Ultimately you will have to advise your client on what they can do. If you go for it, you will be the one on the hook to convince the auditor that you took a reasonable position...and if the auditor is unconvince, face possible penalties. It's your call, however, if you really looked to this message board for input, you have received it, not you have to decide whether you like the input or not. Good luck.

[Uncle Sam]

Retired CPE

Why not deduct the cost of the education courses to meet the minimum CPE requirements-without all the fancy stuff?
That way IRS should not take the position that the taxpayers are taking undue advantage of the law?
If they wish to travel to the moon to take the courses - that's their choice - but the cost of the courses would be incurred regardless of where they take them.

[Black Bart]

Theoretically,

I don't see any reason why you couldn't do it, although I wouldn't do it for the simple reason that what would probably happen is happening (audited!). Are they hiring you to defend them at the audit of their self-prepared return?

The $6,700 is, as Lou Mopeofunkle (the hard-hearted rascal -- I bet he doesn't like kids or dogs and does RALs) implies, a ****ed outrage. Still, if they could convince the agent that they sure enough intended to go back into business, then blowing an outrageous amount for cruise CPE, etc. shouldn't disqualify it since high-roller CPAs do it all the time (I guess their stratospheric fees justify it). Too, I've done schedule Cs which had zero income for the year while claiming lots of expenses. Also did schedule Fs with no income and claiming farm expenses because that particular crop was only harvested every other year. And idle equipment can still be depreciated if a business is temporarily shut down. Here we simply have a (maybe) temporarily idle professional couple.

It's kinda like a horse farm which is in danger of being declared a hobby -- the owner maintains that he sincerely intends to make a profit in the future, but in the meantime, just the fact that he personally enjoys riding horses (or cruising to Hawaii) does not disqualify his expenses.

Sorry, but I don't personally know of such cases or cites. It would surely be an interesting tussle if you were up to it, but an ordinary agent would probably just throw it all out on principle and you might have to appeal, so I'd give some good thought to whether or not I was prepared to go that far with it and if it was worth the time and trouble.

[Luis Mopeo]

Louis, I mentioned earlier that not all of the $6700 was for the licenses and CPE. A PORTION of it was. All I am trying to find out is if there is any basis for deducting professional licensing costs in a year in which one is currently retired. I happen to work with a lot of retirees that decided they didn't want to be retired anymore. Being as we are all CPAs and EAs I can see where one would want to keep up one's professional license until one decides they are definitely not going back to work. However, none of them fall into exactly this circumstance. What we are looking at is a few thousand dollars for classes and licensing. My seminars (and no, I don't take fancy cruises or even go to weekend seminars, or even drive out of town, but I do prefer live instruction, which tends to cost a bit more) do cost about a grand a year. So please stop berating anyone that is debating the question, which is...........is there a basis for deducting professional license upkeep in a year in which one does not actually work in that profession (or work much at all?)

I apologize. You came here with a real question and deserve better than sarcastic answers. I didn't mean to be snide.

I was trying to make the point that the issue is the amount, not the rule. Actually, I think that is a great question. What about someone who stops working, maybe not permanently, and has costs involved in keeping up their credentials? I think it's the same a landlord who has property that goes out of service for a while due to necessary renovations and doesn't have any income, but does have expenses. There are people who would say the landlord needs revenue to deduct expenses. I disagree. It's the activity that controls. Whether you have revenue or not may be a factor in determining the motive, but it's not required.

To make an attempt to be productive, I would suggest you don't use the word "retired" when describing the taxpayers. I would say absolutely YES to deducting professional expenses if their professional life is still viable. However, I would still need to find out why the apparently sudden expense of thousands of dollars appears. If those thousands represent actual CPE for classes they attended in their home towns, I stand corrected.

Mr. Bart: "I bet he doesn't like kids or dogs and does RALs."

I do like kids sometimes (I have three) and I like dogs (I have two and a half [a mean toy fox terrier the wife brought home one night is the 1/2 dog - I come home from a hard day's work and it growls at me when I walk in the door to my own house), and I don't do RALs.

It's a good topic. Sorry to bloviate.

[JohnH]

I think the quesiton will be fairly simple

After the auditor throws out the entire deduction, the T/P will be faced with a tax bill of around $2,500 - $3,000 in tax, penalties, & interest (more or less). The T/P will then have to decide whether it's worth risking another $$2,500 - $3,000 up front to fight it, knowing that at best they will only preserve part of the deduction. This assumes ther aren't other potential problems on this self-prepared return that might come into question during the audit.

Given that scenario, they will likely decide to pay the tax, unless there are other issues on the table, such as prior years returns having the same problem or the sincere intent to continue taking the deduction in future years.

[Black Bart]

Debatin' and Beratin'

I apologize...didn't mean to be snide.

Me too, Lou (I mean, Luis). Please accept my deepest regrets for having insensitively besmirched your character in such a coarse and ill-mannered fashion. In atonement, I herewith vow to faithfully spell your name properly in all future correspondence.

...the issue is the amount...the activity...controls...revenue...may be a factor...but it's not required.

True, true. You're on the mark and that's the gist of it alright.

...I stand corrected...

Dang, but I wish I had a dollar for every time I've had to say that. I'd have enough money to burn a wet mule.

I do like kids...and...dogs...and I don't do RALs.

Glad to hear it. I've got a boy who just reached the age of majority (ordinarily 21, I think, but in his case I had to raise it to 40) and I was wondering if you'd care to swap your three for my one. He can read and write and believes promptness at meals to be the highest human virtue. Please advise if you're interested. I'll take the dogs off your hands too (we don't do any tally-ho fox huntin' here but it would be a boon if he could tree a coon.) Actually, I do a few RALs myself and that's all I have to say about that.

...Sorry to bloviate.

And that's another phrase I get sick and tired of havin' to use.

P.S. What state are you from, if you don't mind sayin' (if you do, then never mind)? I don't know exactly how to "carry on" with a person unless I know what part of the country he/she hails from.

[Bees Knees]

I was a professional musician for years. Main source of income.

I eventually got a day time job that pays better. I still buy musical equipment, CDs, and practice.

At a certain point, for tax purposes, you stop being in the business of a profession. That doesn't mean you stop being that profession.

I will always be a musician, even long after I retire. I may someday earn money doing it again. Not now, maybe later. The question of being able to deduct expenses on my tax return is a different issue.

Are you in the business of being a real estate agent, nurse, EA, musician, CPA, dog trainer, Kung Fu expert, etc., etc. etc?????

Not if you currently are not trying to make a profit doing it.