Attorney's Fees

When are Attorney's Fees Deductible?

Most attorney's fees incurred or paid in connection with a trade or business are deductible business expenses. In addition, attorney's fees incurred or paid in connection with the following nonbusiness reasons are also deductible:

1. For the production of income
2. For the management, conservation, or maintenance of income-producing property
3. For the determination, collection, or refund of any tax (i.e. tax planning and preparation)
4. Beginning in 2005, for unlawful discrimination and certain other claims under federal law (the amount deductible is limited to the amount of income includible in the taxpayer's income on account of the judgment or settlement)

Are Attorney's Fees Related to Divorce and Separation Deductible?

Attorney's fees related to divorce and separation are deductible if they are paid for:

1. The production or collection of taxable alimony; and
2. Tax advice.

It is important that the attorney's fees paid in connection with these services are separately accounted for since amounts paid only for the divorce decree and proceeding are nondeductible personal expenses.

Are Attorney's Fees in Acquiring and Improving Assets Deductible?

Generally attorney's fees incurred or paid for in any the following activities are not deductible and must be capitalized:

1. acquiring property
2. defending and perfecting title to property, or
3. developing or improving property

However, attorney's fees incurred or paid that qualify as research and developmental expenses are deductible.

Do I Need an Attorney to Help Me with My Tax Problems?

Tax laws are complex and ever-changing. Although there are various tax preparation softwares on the market that may help you with your tax problems, they cannot provide the same level of service that an experienced and knowledgeable tax attorney can. If you are unsure about the characterization of your expenses or you need someone to represent you before the IRS, a tax attorney can help you.