Taxpayer asks:
For the past few years, I’ve earned a little bit of self-employed income here in Philly. I never paid the city’s Business Privilege Tax (BPT) until 2006, when I paid all my delinquent business taxes, plus interest and “court costs.” Can I deduct those back taxes on my 2006 federal taxes? If so, do I enter this amount on Schedule C, Line 23? Do I need to provide documentation? Can I also deduct the interest and court costs?
Taxgirl says:
You may deduct local taxes paid in prior years from your federal taxes but not interest or court costs. Even though it’s for your business, the tax is personally attributable to you since you file as a sole proprietor. You could likely get away with filing on Schedule A (as a local tax) or C, but C is probably more advantageous and a better overall fit. Keep documentation in your file, but no need to provide the information to the IRS at filing.
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
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