Tax Deduction Consulting: Attorney Fees Portland ME
Michael J. DellOlio & Associates, L.L.C.
Education: B.S.,MBA,J.D.,NASD Series 6,7,24,63,65; Maine Insurance License
Years of Experience: 24
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Tax Deduction Consulting: Attorney Fees
Tax Deductions for Attorney Fees
The general rule for tax deductions for attorney fees is that the legal action has to be related to some type of income producing activity.
All attorney fees are not automatically tax deductible. There are some cases where they can be taken as itemized deductions. These cases generally deal with some type of business related or income producing activity. If the legal action is related to your business or your employment, the attorney fees are usually deductible.
Attorney fees for legal actions between spouses are an example. The fees paid for the separation or divorce action are not deductible because they have nothing to do with income. However, if one spouse is taking legal action to collect taxable alimony payments, the attorney fees for this would be deductible. It would be important to make sure that the attorney separates his bill isolating the part of the bill that is related solely to the collection activity. On the other hand, if a spouse was trying to reduce alimony, the attorney fees would not be deductible as no income is actually produced as a result of the legal action.
Legal fees for personal injury suits are a very good example of this principle. If the personal injury suit results in the payment of taxable income, the attorney fees are deductible from the taxes of the injured party. If the payment is non-taxable, the legal fees are not deductible. If the defender of the personal injury suit is a business, the attorney fees would be a deductible expense because they are business related.
Estate planning is another gray area of tax deductions for attorney fees. To the degree that the attorney fees are related to tax matters or income producing property, they are deductible. Attorney fees for legal actions related to Social Security are also deductible only to the degree that they result in an increase in taxable benefits.
When you are presented with attorney fees, it is a mistake to make an assumption on...