If you are a professional being sued in relation to your business, your legal fees are allowable expenses. Any allowable expenses are tax deductible, regardless if legal fees involve civil or criminal cases against you and your business. However, it is easy to get confused about tax deduction for legal fees, which is why many professionals hire an experienced tax attorney. Before you try to deduct legal fees, you need to have a reputable tax attorney go over your case and taxes. Tax attorneys that deal with deducting legal fees are experts at following the rules and regulations set for deductible legal fees.
In order to qualify for a tax deduction for legal fees, a legal suit must be brought against your business, or your professional practice. Personal law suits are not tax deductible legal fees. Therefore, a legal suit must be brought against your practice or business. It is important to choose the right attorney to avoid any more complications on your taxes. Some lawyers in the past tried to claim a tax deduction for legal fees on personal lawsuits. The last thing you want to do is challenge the IRS on personal lawsuits. The IRS has won every single case involving tax deduction for legal fees on cases that involve a personal lawsuit.
There are three terms to keep in mind before you start researching a tax deduction for legal fees. The term “necessary” will involve a business’s need to cover costs to stay in business. “Ordinary,” is a term that defines expenses that are typical and expected for a business to run. Finally, the term “reasonable” is a term to define expenses that are not frivolous. Any lawsuit brought against you relating to your professional practice or business will eventually accrue expensive legal fees. Hiring a reputable firm or attorney to help you with legal fees tax deduction is a smart move in the right direction.