Tax Write Offs: Are Legal Fees Tax-Deductible?

Most for personal legal work are not deductible; many for business are. Legal fees are among many of the professional service fees that qualify as tax-deductible when filing business income taxes. The expenses incurred must be considered ordinary and necessary to the business in order to be written off.



If you are getting divorced, starting a new business, or suing someone, then you’re probably going to have to enlist the services of a lawyer. Will you be able to deduct any of the fees your attorney charges you?


In some cases, the answer is yes. Although there are still a few types of personal legal fees that are deductible, the vast majority of them currently are not—at least until the Tax Cuts and Jobs Act of 2017 (TCJA) expires in 2025.

Percentage deductible: 100%


Eligibility:

  • The legal fees must be business related. This is also true of legal cases the taxpayer did not win.

Example deductions:

  • Fees for resolving tax issues

  • Fees related to whistleblower claims

  • Fees related to unlawful discrimination claims

Most Personal Legal Fees Are Not Deductible

If you incur any type of legal expense for a personal reason, from getting divorced, to having a will prepared, to buying real estate, the TCJA of 2017 no longer allows you to deduct these fees. Other nondeductible expenses include anything related to child custody, personal injury lawsuits, changing your name, legal defense for civil or criminal cases, or a divorce settlement.


Many Business Legal Fees Are Deductible

The other side of the coin for taxpayers who are running or starting a business is that many business-related legal fees are deductible on the Schedule C. If you are a businessperson, the legal fees you can deduct include those pertaining to:

  • Collecting income from a customer (along with relevant court costs).

  • A business declaring bankruptcy.

  • Handling and caring for income-producing equipment.

  • Any form of litigation that the business is involved in (and relevant attorney fees).

  • Defending a taxpayer’s business or trade (but only as those fees that directly relate to the business—not to an individual, such as the owner or an employee).

  • Drafting or negotiating contracts between you and your customers.

  • Defending any patent, trademark or copyright claims.

Special considerations:

  • Any legal or professional fees related to personal issues are exempt from deduction, including child custody, personal injury, property claims, and more.


Check out the link below for a list of other tax deductions you can claim this tax season!


https://www.ritbsinc.com/small-business-tax-deduction-list


What questions do you have about tax season? We are here to provide help with tax preparation, accounting, payroll management, and business formation! R&I Tax and Bookkeeping is here to help! You may contact us via our 'Contact' page at https://www.ritbsinc.com/contact. We can also be reached via phone at 253-777-1106.

 

Cussen, M. (2021, November 24). Are Legal Fees Tax-Deductible? (2021).

Cussen. Retrieved January 11, 2022, from

https://www.thebalancesmb.com/depreciation-3193438


Osterhaus, E. (2021, February 1). Complete list of small business tax deductions (2021). QuickBooks. Retrieved December 16, 2021, from https://quickbooks.intuit.com/r/taxes/small-business-tax-deductions/

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