Are you looking at your expenses for this year and wondering about the deductibility of legal fees? As it turns out, you can get legal fees tax deduction, though it does not, of course, apply to all legal fees. Unfortunately, personal legal fees are non deductible, so personal issues such as divorce or slander via a relative will not fall under this. Settling issues with wills and purchasing homes also will not count for deductible legal fees.
However, legal fees that you used to build your business reputation could be considered an investment expense. However, for this aspect of legal fees tax deductible to apply to you, you basically need to be a regular proprietor, and really in a business of some sort.
In general, you can deduct legal fees from your taxes if you need the attorney to help you make money that you need to pay some taxes on, or if they assisted you with a taxation issue. So the legal fees tax deductible need to be connected to taxes.
Knowing which legal fees tax deductible are important, because the law assumes you have one million dollars of income if you win a case worth that much, even if your lawyer is keeping thirty percent. You want to be able to deduct the three hundred thousand, if possible. Luckily, if you receive damages in a personal injury case, you entire recovery is tax free. You need to make sure to look into the specific, though, because physical sickness is tax free, while punitive damages are not.
How do you collect tax deductible legal fees? The usual way of doing this is itemizing it as a miscellaneous deduction on schedule A of your Form 1040 tax return. The Miscellaneous deduction section falls under the two percent role, in other words, you can only deduct up to two percent of your AGI, or adjusted gross income.
For businesses, you can have legal fees tax deductible for collecting customer debt, negotiating contracts between you and customers for your goods and services, start up business fees, or defending against a work related claim.