Taxes Are Confusing So Are Legal Proceedings Can You Deduct Legal Fees From Those Taxes? Stay Tuned
The tax deductibility of legal fees can vary on a case by case basis. If you have any questions, of course you should always consult a tax professional. That being said, there are a few general rules of thumb to remember so that you can know when to ask that professional. If any of these coming up sound like potential situations that may fit you, then call up that tax guy when February rolls around.
Tax deduction for legal fees can be applied if you include two things into your gross income. If the total amount of the settlement that you were awarded is applied to your gross income, and if any contingent attorney fees that you paid came from that award. Those are the two must haves in order to deduct legal fees.
Once those two are present, deductible legal fees that you paid to the attorney are treated as a miscellaneous itemized deduction. And be warned, the deductibility of legal fees is subject to the customary two percent of adjusted gross income limitation, so you cannot deduct a huge bill when you are unemployed. And this deduction must be reported on Schedule A.
If the attorney was used in relation to divorce tax advice, the deductibility of legal fees is possible if it meets three criteria. If the advice has a specific monetary value, if it has been determined in a reasonable way (i.e. an hourly rate and not $30,000 for a piece of advice), and if it was paid in order to collect taxable alimony, then you can deduct.
Like I have always said, if you have tax questions, talk to a professional. There is only so much information that you can find online. And not all of it is true or functional. But, if you know what to look for, you will know what to ask about.