 Income tax 2022-2023. Business expenses, legal and professional fees. Let's do some wealth preservation with some tax preparation. Support Accounting Instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again click the link below for a free month membership to our website and all the content on it. This information comes from the tax guard for small business for individuals who use schedule C publication 3-3-4 tax year 2022 you could find on the IRS website irs.gov irs.gov looking at the income tax formula we're focused on line one income remember in the first half of the income tax formula is in essence an income statement but just an outline other forms and schedules flowing into these line items one of those the schedule will see having business income minus business expenses the business net income in essence flowing in from schedule C to line one income of the income tax formula the first page of the 1040 noting that the schedule C flows into the schedule one which flows into the first page of the form 1040 line number 8 the schedule C profit or loss from business is formatted in an income statement format income minus expenses were focused on the expenses here more specifically on those related to legal and professional fees so legal and professional fees legal and professional fees such as fees charged by accountants that are ordinary and necessary expenses directly related to the operating your business are deductible on schedule C so that is great make sure to pay your accountant well then since you get to deduct the legal and professionals obviously that makes sense because if the legal and professional work was for the purpose of your business you would expect them to be ordinary and necessary and something to be deductible obviously it gets a little bit more confusing if your accountant is also doing professional work possibly doing your taxes and helping you with that as well which could have a personal component to it as opposed to simply a legal component in that case and when you're talking about legal expenses oftentimes we're thinking lawyers in that situation the question would be are you paying them for business related items or are you paying them for some kind of personal related item to see whether it would be deductible as a business expense so however you usually cannot deduct legal fees you pay to acquire business assets so add them to the basis of the property so you might think well wait a second that's still a business item that I bought business assets so let's say you bought a building or something like that then really what's happening here is if you had to pay the lawyer or something to go through the purchasing process or the professional to go through the purchase purchasing process then do you get to expense it or you do do you have to include it into the asset of the of the building and possibly get the benefit from the expense by depreciating the asset if it's a depreciable asset as opposed to land which isn't depreciable so that would be the the item there so right so the question is do you have to capitalize it as something that's a fixed asset and then possibly depreciate it we would rather not have to do that usually from a tax standpoint because as we saw when we looked at depreciation the general rule is that we would like to get the expenses early as possible usually for taxes so there's that situation if the fees include payments for work of a personal nature such as making a will you can take a business deduction only for the part of the fee related to your business so now you're paying for something that might have some link to your business in which case you have something that's once again personal and business that's often where the fuzzy problem areas come in with taxes we have something that we can't neatly split up between business and personal and typically have to find some method to break out the business versus personal portion of something we're paying in order to deduct the business ordinary and necessary part so tax preparation fees so you can deduct on schedule see the cost of preparing that part of your tax return relating to your business as a sole proprietor or statutory employee so here's another area which gets complicated because now we're thinking tax preparation and you're saying well I have tax preparation on the schedule see but I'm also doing whatever the schedule a and the rest of it so then you have another expense that has a business and personal component to it in essence and you need to be breaking out the business versus personal components of it so you can also deduct on schedule see the amount you pay or incur and resolving a certain tax deficiencies for your business as a sole proprietor or statutory employee so other kind of tax issues that come up could have a business component related to them because part of the tax issues is the schedule see component which is your business