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Legal Expenses as Tax Deductions

I am always getting asked, “Can I deduct my legal fees on my taxes?”  So let me explain the law on that.  Legal fees related to producing or collecting taxable income or getting tax advice are deductible.

Deductible Legal Expenses include:

  • The cost of either doing or keeping a job, such as expenses paid to defend against criminal charges arising from the taxpayer’s job.  This is certainly so for legal fees for a small business to keep running.
  • The cost of tax advice related to a divorce if the bill specifies how much is for tax advice and it is determined in a reasonable way.  Ask for an itemized bill.
  • The cost of collecting taxable alimony.  The key is that the legal fees paid must have been for something that had a direct effect on taxable income.   Legal fees paid to go after Child support is not deductible because it isn’t a taxable source of income.
  • Fees and Court costs paid for unlawful discrimination, a claim against the US Government, or a claim made under §1862(b)(3)(A) of the Social Security Act, are deductible as an adjustment to income rather than as a miscellaneous itemized deduction.  The deduction is limited to the amount included in gross income for that claim.  All other legal fees for this type of claim are deductible as a miscellaneous itemized deduction subject to the 2% AGI limitation.

NON-deductible Legal Expenses include:

  • Custody of children.
  • Breach of promise to marry.
  • Civil or criminal charges resulting from a personal relationship.
  • Damages for personal injury.
  • preparation, defense, or perfection of a title to real property (Land Deeds and houses)
  • preparation of a will.
  • Property claims or property settlement in a divorce.

If you aren’t sure if the fees you have paid are deductible, shoot me an email and I will follow-up for you.

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