Legal fees cannot be accurately described as cheap. According to Lawyers.com, attorney fees range anywhere from $100 to $400 dollars, depending on the services offered and the geographic location. However, if they offer specialized expertise in the law, their rates are likely to be much higher. Chapter 7 bankruptcy, for example, usually leads to an average bill between $1,080 and $1,800 for the legal fees, according to NOLO.
Of course, for many Americans, legal fees are not something they can afford. After all, as ABC News points out, 76% of Americans are living paycheck to paycheck. If they cannot afford to pay their normal bills, how can they afford legal services. For many, the tax deductibility of legal fees they have incurred may be their saving grace.
What is Eligible for Deduction?%3Cbr%3E
The American tax system does not specifically define what sort of legal fees are deductible legal fees and which are not. However, as Forbes writes, precedence has been set through the years. Generally speaking, legal fees incurred for business purposes are tax deductible legal fees. This could mean that a lawsuit is filed against you for a work-related matter or you are filing for incorporation for your new business venture.
Other forms of tax deducting legal fees can be gained when you seek tax advice from your lawyer. As aforementioned, most legal fees related to businesses are tax deducting legal fees. These may net you up to a 40% deduction. For example, if it costs you $5,000 dollars to perform a legal action for your business, up to $2,000 may be deducted.
What is Ineligible?%3Cbr%3E
Whereas most business legal fees are tax deductible, most personal legal fees, unless they involve taxable income, are not viewed as tax deducting legal fees. For instance, seeking a divorce will come completely out of your pocket. However, there are some exceptions to this rule. Say, for example, you have to take your former husband or wife to court for overdue alimony. In that case, your legal fees would be tax deductible.
How to Seek Tax Deduction for Legal Fees%3Cbr%3E
The single best way to find out if your legal fees are deductible for sure, according to Lawyers.com, is to ask knowledgeable professionals. Legal professionals know whether or not their services qualify as tax deducting legal fees. Alternatively, seeking out the services of certified public accountants, CPAs, is a great way to find the deductions you are eligible for.
Legal fees can add up quickly and be a burden greater than many can bear. However, tax deductions may be enough to keep your head above water. Keep these facts in mind to help you navigate the waters of taxation, but note that this should not be taken as a perfect source on the matter. Only your lawyer and accountant can tell you for sure what you can deduct.