Whether or not an attorney fee may be tax deductible will typically depend on if the fees are associated with a personal legal issue or a legal issue pertaining to a business. In general, attorney fees related to a personal legal matter, such as a divorce or legal separation, are usually not considered to be tax deductible.
Some examples of attorneys’ fees that may not be eligible for a tax deduction include:
- Attorneys’ fees paid for legal advice on personal tax issues (note that this does not include tax issues or tax advice for the purposes of business taxes);
- Attorneys’ fees paid to defend someone against a civil claim or criminal charges that arise in connection with a political campaign; and/or
- Attorneys’ fees paid in association with various types of personal legal issues, including:
- Child custody cases,
- Personal injury lawsuits,
- Civil claims or criminal charges concerning a personal relationship (e.g., fees paid to defend a person against domestic violence charges),
- Breach of promise to marry (e.g., engagement ring cases, breach of contract to marry, etc.),
- Claims, settlements, or purchases related to real estate and/or property,
- Title preparation or disputes over title to property, and
- Estate planning matters (e.g., setting up a trust or drafting a will).
On the other hand, if the legal fees are being paid in connection to legal services provided for a business matter, such as a business contract, then they will be considered to be a business expense and thus will be fully tax deductible.
A good rule of thumb to remember the rules regarding whether an attorney fee is tax deductible or not is that you will most likely be able to deduct an attorney’s fee from your taxes if you are trying to do one of the following activities:
- If you are trying to generate or collect taxable income (e.g., for a business); and/or
- If you need help determining the amount of a tax refund, collecting a tax refund, or obtaining a refund on business or individual taxes.
- It is important to note that legal fees paid to lawyers for providing legal advice on most personal tax issues will not usually qualify for a tax deduction unless it is specifically for an ordinary and necessary tax expense like collecting a tax refund.
In other words, you will most likely be permitted to deduct attorneys’ fees from your taxes if you used the services of a lawyer to either make money that you are required to pay taxes on (e.g., earned income) or if a lawyer is assisting you with a tax matter, such as representing your business during an audit by the U.S. Internal Revenue Service (IRS).
Basically, if you paid for legal fees that are related to taxes or taxable income, then you will be able to deduct them from your taxes. This is especially true if the legal fees are associated with a business matter, such as legal fees paid to an attorney to help you file the Articles of Incorporation for your business.