are legal expenses tax deductible
An employee may deduct legal fees related to performing or retaining his job, such as fees paid for defense against criminal charges or disciplinary or licensing proceedings arising out of business activities, or when involved in a class-action lawsuit. In short, to deduct legal fees, the taxpayer must usually show that the expenses are connected to the operation of a trade or business, to an investment or profit-making activity, or to the payment of taxes. 1. Use Form 1040. If the legal expense is a business expense, you may deduct it on IRS Form Schedule C (Form 1040), line 17 or Schedule C-EZ (Form 1040 or 1040-EZ). 1  If the expenses are personal, you can itemize the expenses on the same form, or take the standard deduction, depending on your situation. Employees must, however, deduct legal expenses as miscellaneous itemized deductions, which limits deducting only the amount over 2% of their adjusted gross income (AGI). Taxpayers subject to the alternative minimum tax (AMT) are not permitted to claim miscellaneous itemized deductions, including legal fees. These types of legal fees are deductible as a business-related expense. You can deduct legal expenses incurred in your attempts to produce or collect taxable income as well as legal fees you pay in connection with the determination, collection, or refund of any tax. 1 Deduct legal fees related to necessary medical care. 2  While legal fees related to the guardianship of estates and other affairs related to medical care are not deductible, expenses directly related to necessary medical care, including mental illness diagnoses, may be included in medical legal fee deductions. Generally, the IRS says no to tax deductions that might ease the pain of divorce. The agency has no sympathy for the legal fees and other costs incurred by a couple who split--whether it's a divorce, separation or decree of support. If a transaction in which a legal fee is incurred is attributable partly to a deductible business or investment activity and partly to a non-deductible activity, such as personal or capital expenditures, the taxpayer can claim a deduction for the portion of the fees that are deductible. Determine if the fees are personal legal fees or business fees. The general rule of thumb is that legal expenses may be deducted for anything revolving around producing or collecting taxable income, and calculating, collecting, or acquiring a refund of any tax. The Internal Revenue Code typically does not allow individuals to deduct fees paid for legal and other professional advice on personal matters. However, legal expenses incurred in slander lawsuits involving the taxpayer’s business reputation could count as a business or investment expense.
Yes