Having to pay legal fees is never anyone’s idea of a great time. But having the option of deducting them is a lot less painful. For example, a 40 percent tax rate equals about $10,000 in legal fees. But the deductibility of legal fees means it will only cost about $6,000. However, one should be aware that legal fees are non deductible, therefore less desirable. For instance, someone who is getting a divorce or is sued by a family member cannot partake in the deductibility of legal fees. But legal fess paid to help a business reputation could be an investment expense, making it acceptable to deduct legal fees. Fully deductible legal fees means the fees are subject to limitations or alternative minimum tax. But, those who wish to use this process of deductibility of legal fees must really be in business. If you don’t file as a proprietor even deducting legal fees for business should be itemized deductions. This means that legal fees up to two percent of the filer’s gross income are not deductible. In order to count tax deductibility of legal fees, one needs to claim as a proprietor and be in business currently. Tax deduction rules for legal fees are very important because of contingent fee lawyers. Those who amass a large amount in a lawsuit with the contingent fee lawyer keeping his or her share, one might consider themselves profiting from the deal. However, the amount gained from the lawsuit is considered the true income and suddenly you need to worry about the deductibility of legal fees. It is worth noting that damages in personal physical injury cases are tax free, so a contingent fee lawyer the entire recovery is tax free, allowing the injured to not have to consider the tax deductions for legal fees. Personal physical injury and physical sickness recoveries are tax free, but punitive damages and interest are taxable. Making sense of the many ways to account for the deductibility of legal fees can be tricky and time consuming. To get more information about legal fees tax deduction, be sure to speak with a qualified legal expert who can offer sound advice on all legal fee matters.