US tax preparation a business expense?

[willmore]

I'm a US citizen contracting in the UK the past two years through my own limited company, which has been the sources of all my earned income. All other income is below the US standard deduction.

I expensed my US tax preparation fees last year to my limited company, but my accountant believes HMRC would classify this as not wholly and exclusively for business use so not an allowable expense.
If not for the business income I would not have had to file a US return, which seems to me to be a business expense.

Any thoughts from accountants or US citizens who have dealt with this?

Thanks

[northernladuk]

This would be your personal tax preparation?

[stek]

I take it you are on a dependent visa of some sort?

[TheCyclingProgrammer]

Just as your fees for preparing your UK personal tax are not a tax deductible expense, neither would your US personal tax return be either.

[jamesbrown]

Definitely not tax-deductible as it has nothing to do with the operation of your business. The part about the US is a red herring.

Incidentally, I hope you know what you're doing w/r to US taxes. Even before the recent changes, it was an absolute minefield being a US citizen and director of a Controlled Foreign Corporation. Are you treating this income as pass-through?

I believe with the recent tax changes, you're now pretty screwed with the repatriation rules too.

https://www.ft.com/content/cb6762f4-...7-42f857ea9f09

(if you're not a subscriber, Google: "Americans abroad hit by Trump’s new repatriation tax rules")

[WordIsBond]

We've been advised that the fee for the filing of Form 5471 or its equivalent (depending on whether you took the disregarded entity election and your ownership structure) is an expense of the business, and have acted accordingly. The rest of your return is a personal item. If you use the same provider for both, you should ask them to bill your company for the company form, and you personally for the rest of the return.

If you didn't file as a disregarded entity and you haven't been filing 5471, you are in a world of hurt.

As noted, if you had significant retained earnings/profit in your company on 2 November, you may be in a world of hurt. They really ought to fix it, but probably won't get around to it. Idiots. See here: https://www.americansabroad.org/tax-...ed-whats-next/ for a little more detail.

[willmore]

Thanks everyone. I’m a long-term expat, dual national, filed 5471 last year.

Thanks for the heads-up on the consequences of the US tax reform. I hope I can set off any impact against my foreign tax credit.

The division between 5471 and other forms makes sense as it is an information form that’s required even if the business is dormant and I have no income. WordIsBond, is this HMRC guidance ? Is there a reference you can share?

Is my UK personal return a business expense? My accountancy charges a monthly fee for all its services including preparing my annual self-assessment return. They do not break out the cost of this as a personal expense, director’s loan, or benefit in kind.

[WTFH]

Is my UK personal return a business expense? My accountancy charges a monthly fee for all its services including preparing my annual self-assessment return. They do not break out the cost of this as a personal expense, director’s loan, or benefit in kind.

No, personal tax returns are not a business expense, they are personal.

[WordIsBond]

The division between 5471 and other forms makes sense as it is an information form that’s required even if the business is dormant and I have no income. WordIsBond, is this HMRC guidance ? Is there a reference you can share?

Is my UK personal return a business expense? My accountancy charges a monthly fee for all its services including preparing my annual self-assessment return. They do not break out the cost of this as a personal expense, director’s loan, or benefit in kind.

No HMRC guidance, it was my accountant's advice. I can tell you the reasoning, and you can run it by your own accountant.

Form 1040, etc, is something you'd have to file no matter what your source of income. Therefore, personal. Form 5471 is related solely to your business. You are not reporting personal income or expenses. It is a cost of doing business for Americans in this country. It is an expense incurred solely because of owning/operating a business, and therefore is a business expense.

I agree that the filing of UK self-assessment returns by a company's accountant is technically a personal expense. I think it is a little dubious for your accountant to provide that as part of their package for which they charge YourCo Ltd, and then claim, on the other hand, that the equivalent US return preparation is not a business expense.

Their answer, probably, is that they are providing it free of charge. That still makes it, technically, a Benefit in Kind, I'd say. But I'm not an accountant and maybe there is some regulation that lets them get away with this.

The big difference between Self-Assessment in the UK and your US return is that the overwhelming majority of the work YourCo's accountant does is clearly for the company, while most (if not all) of your US return is clearly personal. That makes it a lot easier for the Self Assessment to slide by while a lot harder to justify the US return.

I do my own Self Assessment (and also for the lovely Mrs WIB). I pay for my US return. So both are personal expenses for us. MyCo pays for normal accountancy and for Form 8865 (partnership, disregarded entity but multiple share owners). My accountant thinks this is all on a very solid footing with clear distinctions being maintained. But I can't cite any reference / guidance rather than his opinion. HMRC guidance is often dubious or flat-out wrong anyway.

[willmore]

Thanks, this is all very helpful. I'll run it by my accountancy and see what they say.