Are Legal Fees & Expenses Tax Deductible?
Tax deductions are expenses that the Internal Revenue Service allows taxpayers to subtract from income when calculating income taxes owed. If you incurred legal fees -- fees paid to attorneys or other legal professionals during a certain tax year -- you may be eligible for a tax deduction. Attorneys often charge hundreds of dollars per hour of work, so deducting legal fees can result in significant savings.
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Job Related Legal Fees
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Legal fees that you incur as a result of doing your job, running a business or protecting a job are tax deductible. According to the IRS, legal fees incurred while attempting to produce or collect taxable income are deductible. The IRS also states that legal fees you pay to defend yourself against criminal charges related to your trade or business are deductible.
Other Deductible Legal Fees
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Certain legal fees related to taxes and divorces are also tax deductible. The IRS says that legal fees you pay "in connection with the determination, collection, or refund of any tax" are deductible. In addition, legal expenses incurred getting advice about taxes in divorce and collecting taxable alimony are tax deductible. The IRS states that taxpayers may use Schedule A on tax Form 1040 to deduct expenses related to non-business tax issues.
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Personal Legal Fees
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Personal legal fees not related to a job, business, or taxes are not tax deductible. For instance, if you sue someone for damage caused to you in a car accident, legal advice you receive is not tax deductible. The IRS lists the following areas as examples of non-deductible, personal legal expenses: the preparation of a will, child custody, civil and criminal charges that stem from personal relationships, damages for personal injury and property claims in divorce. In addition, the IRS states that you may not deduct legal fees that arise to defend charges that arise due to participation in a political campaign.
Considerations
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Tax deductions for legal fees are considered itemized deductions. Taxpayers have the option of using a standard tax deduction or using the sum of their itemized deductions when calculating taxes owed. If itemized deductions do not exceed your standard deduction, you will not save money by deducting legal fees. TurboTax states that the standard deduction for single filers is $5,700 and $11,400 for married couples filing jointly for 2010 returns.
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