How to Use Legal Fees as a Tax Deduction

The IRS allows taxpayers to use legal fees as a tax deduction under certain circumstances. These may include personal tax issues, issues related to your job or trade, business legal fees and issues related to a divorce or collection of alimony payments. Legal fees related to your business are usually taken on Schedule C as a business expense. Other legal fees are included in your itemized deductions on Schedule A.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Schedule C or C-EZ
• Schedule A

1. Ask your attorney to provide a detailed breakdown of services provided and their general purposes on each bill so that you can easily determine the portions of each bill that are deductible or nondeductible.

2. Assemble documentation and records of the legal fees you have paid during the tax year. Break them down by category and the reason why they are tax deductible

3. Deduct legal fees for nonbusiness tax issues on line 21 of Schedule A. Include issues related to tax preparation, determination, payment and refunds of any nonbusiness taxes.

4. Use line 27 of Schedule A, "Other Miscellaneous Deductions," to take a tax deduction for legal fees incurred in an attempt to do your job, keep your job or produce or collect taxable personal income.

5. Use line 27 for legal fees related to tax advice related to a divorce or to the collection of taxable alimony payments.

6. Complete the rest of Schedule A and file it with Form 1040 if your itemized deductions exceed the amount of your standard deduction.

Use Schedule C to Deduct Business Legal Fees

7. Review your attorney's bills to your business to subtract and personal legal services that may have been included in this billing. These costs may be appropriate for deductibility with your personal miscellaneous deductions on Schedule A.

8. Total your legal fees for business purposes and enter the amount on line 17. This amount may be combined with other professional fees such as a CPA's billings.

9. Complete Schedule C and file it with Form 1040.

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on 8/7/2009 Just to clarify: ordinary legal fees for divorce-related matters are not tax deductible on Line 27 or anywhere else. Only legal fees related to taxable income, such as alimony (not child support, custody or division of household assets) are deductible. Other than that potential point of confusion, this article gives good ideas about possible deductions for legal fees.