Can Legal Fees or Expenses Be Deducted on a Tax Return?
Legal Fees should be separated into business expenses and personal expenses.
Personal Legal Fees
The following types of personal legal fees can NOT be itemized on a personal tax return:
- Legal expenses or fees that you pay in connection with the determination, collection, or refund of any taxes
- Attorney fees related to non-business tax issues or tax advice
- Child custody-related legal fees
- Legal expenses related to selling or purchasing real estate
- Personal injury-related attorney or legal fees
- Property title preparation-related fees
- Estate planning such as will, living trust preparation, attorney fees
- Property claims or settlements fees
- Divorce-related expenses or fees related to breach of promise to marry
- Legal fees paid to defend criminal and civil charges arising from participation in a political campaign.
- Nondeductible amounts include:
- An amount paid in settlement of your actual or potential liability for a fine or penalty (civil or criminal)
- fines or penalties include amounts paid, such as parking tickets, tax penalties, and penalties deducted from teachers' paychecks after an illegal strike
- restitution amount, or the amount paid to come into compliance with the law unless the amounts are specifically identified in the settlement agreement or court order
- amounts paid or incurred as reimbursement to the government for any investigation or litigation costs are nondeductible.
- Attorney fees from injury/sickness-related settlements or court cases might not be deductible unless otherwise stated. Awards from legal settlements and/or court cases: Payments from a settlement or courts case are most likely taxable and should be added or reported to the gross income reported on the tax return, with maybe the exception if the fees were awarded as a result of a lawsuit for physical injury or sickness. Note: Other rules and exemptions might apply that may apply, as outlined by the IRS.
A detailed overview of legal expenses that can or can not be itemized.
Personal legal or attorney fees that might qualify to be itemized on a personal tax return:
- Legal expenses that are related to doing or keeping a job, such as those paid to defend yourself against criminal charges arising out of your trade or business
- Fees related to the Child Adoption process if you qualify for the federal adoption tax credit as reported on Form 8839
Business Legal Fees
Potential business, rental property-related legal fee deductions.
- Fees for resolving business-related tax issues, advice or preparation of tax forms related to a business, etc.
- Legal fees that are ordinary and necessary expenses directly related to operating your business e.g., creating contracts, etc. Schedule C/Form 1040
- Legal expenses related to rentals or royalties on properties that generate passive or active income. Schedule E/Form 1040
- Legal fees related to farm income and expenses. Schedule F/Form 1040
- Fees related to whistleblower claims, as reported on Form 1040
- Legal fees associated with unlawful discrimination claims as reported on Form 1040.
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