retired and deducting professional license expenese

[joanmcq]

Thank you for these cites. I may prevail with the wife because she is actively looking for work, but his are toast.

[New York Enrolled Agent]

It seems the following language from TC Memo 1978-344 has some useful cites relevant to the original poster's question. Caps added.

[start] During 1974, petitioner was fully retired. He earned no income as an accountant and there is nothing in the record to indicate that he had any intention or plan to resume practice as an accountant. Even if he had had SUCH AN INTENTION, it would not be sufficient to sustain his claimed deductions. Expenditures incurred to enable a taxpayer to resume the active conduct of his profession at some unspecified later date are NOT deductible. See Canter v. United States, 354 F.2d 352 [ 16 AFTR 2d 6051] (Ct.Cl. 1965); Corbett v. Commissioner, supra; Owen v. Commissioner, 23 T.C. 377 (1954). Clearly no temporary hiatus in petitioner's activities is indicated. Compare Haft v. Commissioner, 40 T.C. 2 (1963), with Corbett v. Commissioner, supra. NOR CAN petitioner obtain any sustenance from his assertion that his expenditures were designed to enable him to continue as a member in good standing of the accounting profession. See Wyatt v. Commissioner, 56 T.C. 517, 520 (1971). [end]

[Luis Mopeo]

When we tell the customer that they "can't do that," the customer comes back with "I don't know why not, because he's been deducting it for years and I never hear anything back from IRS." They simply think the dope across town "knows taxes" and we're just overly conservative stick-in-the-muds who are behind the times.

Minnesota, by golly.

Youbetcha, clients' perception of your level of knowledge and skill is directly related to how big a refund they're getting. You can bet that if the guy across town comes up with a higher balance due than you in a particular year, all of a sudden you'll become the greatest tax expert, doncha' know.

[Golden Rocket]

Luis Mopeo

Bart, with a name like that, he might be from the northeast I-95 corridor - a la Casa Nostra. Knows too much to be a thug, though. Besides, he doesn't do RALs...the litmus test of all abominations, right?

[Black Bart]

Hey G R,

...the kid at the storefront office who makes a keypunch error in TaxWorks, ignores blatant claims of the EIC crowd, and also the guy across town who will deduct anything and knows nothing of what we learn in these seminars.

I agree 100%. The people that do us the most damage are not the better educated, more experienced, or extremely knowledgeable tax preparers, but rather the unknowing and uncaring rank amateurs who put down anything and everything and get away with it. The problem is compounded by IRS not enforcing their overly complex rules and/or catching most of them. When we tell the customer that they "can't do that," the customer comes back with "I don't know why not, because he's been deducting it for years and I never hear anything back from IRS." They simply think the dope across town "knows taxes" and we're just overly conservative stick-in-the-muds who are behind the times.

I'm reminded of a home-office, self-taught preparer I once knew who did about 50 returns a year 'til she retired. She used only old pre-ACRS SL depreciation and had never even heard of ACRS, MACRS, etc. I saw a few of her clients' returns over the years -- cost was simply divided by either five years or ten years and that was depreciation.

While her exclusive use of old SL probably wouldn't have made much difference dollar-wise (other than a few people missing 179 when needed), I always think of all the hoops we've had to jump through over the years learning about ACRS, MACRS, S179, class lives, bonus depreciation, qualifying property, etc. It's astonishing and makes me just a little bit crazy to consider the enormity of the convuluted garbage we've sweated blood to absorb while others are completely and blissfully unaware that such things exist; probably never giving it a thought and breezing right along without breaking a sweat or having the slightest concern for things that (to them) don't really matter.

I'm not sure what the moral of that story is except maybe that those who "do right" have the satisfaction of knowing they've "done right." Also, an analogy might be what a physical education coach once said about the world's best fencer having nothing to fear from the second-best fencer, but a great deal to worry from someone who knows absolutely nothing about fencing.

P.S. Now that I've bloviated again, do you happen to know what state Luis is from? I can't seem to get a rise out of him without mentioning dogs, kids, or RALs and I need somebody to argue/banter with.

[joanmcq]

because I represent people that did their own returns, I see a lot of this kind of stuff. Believe me, $6700 is small potatoes compared to a lot of what I see. For example another has about $49,000 of employee biz expenses, against $210,000 of income. Reviewing his company's reimbursement policy, I see he gets reimbursed the full 48.5 cents per mile. So I bring up why is he deducting 30,800 biz miles. He says, 'well, I have a gas card but I have to pay for the car.' Turns out he has a company car that he pays $100-$140 a month for (couldn't get an exact amount). All maintenance, etc is paid by the company! He actally says, I only get paid mileage if I use my personal car, so how do I get reimbursed for mileage in the company car?' So I'm used to the outrageous figures; its the underlying theory of the question (the original question, not the one postulated by the confused person described above) that I needed to get some feedback on.

For the retired couple, I think this was the first year they stopped working and got confused (That's where I've always put those expenses!). and neither did list their professions as 'retired'....they are teacher/engineer and teacher/social worker. One of my coworkers seems to recall an audit she did (or researched) that involved a retired doctor who was keeping up his license to to volunteer work for a charity, but she couldn't find the cite right away. I believe that deduction was allowed.

[Lion]

Expenses

Did they have similar expenses the previous year? Where did they deduct them that year? Did they expect to continue in the same business? Have they returned to one or more of those businesses? Did they ever have profits in each of those businesses? Was one or more of the education/license expenses to learn/qualify for a new profession? Why did they feel those expenses were deductible the year being audited? What was their intent -- business or hobby? Do they consider themselves retired? Why are they each keeping up multiple licenses at their ages? Are the expenses really usual and necessary? You're going to have to get a complete picture over time of each separate business to advise your clients. You may find that some of the expenses are really personal. You may find that your clients have some basis to deduct other expenses. Ask them a whole lot of questions first, then research, and then advise them of their options.

[JohnH]

Wrong word

I think the word for blowing up the baloon & letting it fly is blolevitate...

[Golden Rocket]

Bloviate

Bart, I used to do this unmentionable act when I was a kid, too.

Haven't consulted Webster on this, but I think it is when you blow
up a balloon and don't tie it, then you turn loose of it and it flies
all across the room n' stuff until it runs out of air.

thus a kid can bloviate repeatedly until Momma gets tired of it.

[Golden Rocket]

EA and CPE

I needed 32 hours this year. The land-grant college in my state gives one-day seminars only, so I'm having to travel twice for 2-day seminars.

Not to Vegas or Hawaii, but to luxurious tourist havens such as the Piedmont Plateau and the red clay of Alabama. My total cost (travel included) is around $1000.

How do I recover this from my clients? I don't, really. When we learn in greater depth, we find out how to take advantage of deductions, but we also find out more revenue we are supposed to report, along with audit horror stories and court cases, most of which are won by the the IRS. The EA certificate is thus "revenue-neutral" for my clientele.

And I am a much worse preparer than "the guy across town." In my area, the most knowledgeable tax preparer is the one who gets people back the most money. This includes the kid at the storefront office who makes a keypunch error in TaxWorks, ignores blatant claims of the EIC crowd, and also the guy across town who will deduct anything and knows nothing of what we learn in these seminars.

$6700 for professional expenses (even if some of it is not toward keeping up a certificate)? against $400 in revenue? Joanmcq, if we appear incredulous and skeptical it is toward the brainchild of your clients, and not toward you for bringing this to the forum. Keep those cards and letters coming.

[oceanlovin'ea]

Circumstances

You might check with them to see what their circumstances were during that year. There might have been a legitimate reason that they had no income for the year, such as a serious illness in family, repressed area (if real estate sales), etc. You get the idea.

I had a client that had a carpet cleaning business, well, he was starting the business. He was trying but had no income the second year. I told him he could not deduct expenses when he had no income. He called IRS and was told that he could still deduct depreciation and mileage trying to get work. So I amended his return.

But I agree that their figures sound rather high and some of the expenses might be better deducted on a different part of the return. If they are self-employed people, it would go on the schedule C, not employee business expenses.

You really have to look at all the facts before making a decision.

Linda F

[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.

[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.

[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.

[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.