Is attorney fees tax deductible? It’s always wise to consult with your tax expert about this, but in general, you can deduct attorney fees under certain circumstances, provided the fee relates to your business or job and isn’t personal.
Here are some guidelines from the IRS on what’s deductible and what isn’t, as well as some tips on how to get your money back if you find yourself in this situation.
Attorney fees are generally not tax deductible
Although attorney fees are not typically tax deductible, there are some exceptions. If your legal expenses were for recovering or defending property that was stolen from you, then it’s possible the IRS will allow these costs to be deducted as a theft loss.
If your legal expenses were for stopping someone from committing an illegal act against you, then it’s possible the IRS will allow these costs to be deducted as a personal injury expense.
It’s also possible that if your legal expense was for making a claim against another person (for example, if someone is suing you), then the cost can be deducted under miscellaneous itemized deductions.
The IRS may allow you to deduct some legal fees
The IRS may allow a taxpayer to deduct certain legal fees incurred in their trade or business if the taxpayer establishes that he or she had an economic profit for the year and that the deduction does not constitute personal, living, or family expenses.
The taxpayer must:
1) Show that they had an economic profit for the year;
2) establish that the deduction does not constitute personal, living, or family expenses;
3) file a return with a net profit.
In addition, while most legal fees are generally allowable as a deduction if incurred in connection with one’s trade or business, or profession, there are some limitations and exceptions.
You must itemize your deductions in order to deduct legal fees
Deducting your legal fees might be possible if you itemize your deductions.
In order to do so, the following conditions must be met:
-Legal fees are paid for a trade or business.
-You must have incurred the expense in order to get income from that trade or business.
-The deductions are ordinary and necessary expenses.
-The total of all the deductions is more than 2% of your adjusted gross income or AGI.
Speak with a tax professional if you have questions about deducting legal fees
As a business owner, the legal fees and expenses incurred in the course of your work are usually deductible.
For example, if you’re a real estate agent who hires an attorney to review a contract with a client, the legal fee would be deducted from your taxable income.
But before claiming any expense on your taxes, it’s important to check with a tax professional and make sure that it is indeed eligible for deduction.
The only way for you or anyone else to deduct any expense from their taxes is if they can show that it was related to their business and not personal use. As such, all deductions must be documented in writing.