The quick and simple answer is that attorney fees for personal legal matters, such as divorce, are not tax deductible. However if your attorney fees are a business expense, then they are fully deductible. The general rule is that you can deduct attorney fee’s that you pay for if:
- Trying to produce or collect taxable income
- To help determine, collect, or obtain a refund of any tax
Basically, you can take a tax deduction if you used a lawyers service to make money you have to pay taxes on or if the attorney helped you on a tax matter like representing you in a IRS audit. If the legal fees you paid for is related to taxes or taxable income, you can take the deduction.
When Can You Deduct Legal Fees?
The main rule is that if the legal fees arose out of trying to produce or collect taxable income, most likely those fees will deductible. Common examples of such situations include the legal fees you paid to sue someone for back rent, the legal costs of defending your business from a lawsuit, and even the legal fees you paid fighting for a tax refund.
Even some personal legal matters can be considered an income producing action. While the fees paid involving your separation or divorce is not deductible, if you took legal action to collect alimony or child support, those fees may be deductible. You can also deduct the fees you paid to an attorney for a divorce if the attorney gave you tax advice related to the divorce and specifically itemized it in his or her bill. Thus, for tax purposes it is important that your attorney itemize the final bill to indicate what fees are related to collection activity.
Do I Need to Contact a Tax Attorney?
It is a mistake to make an assumption one way or the other when it comes to tax deductions. If you are unsure as to whether something is tax deductible, you should contact an experienced tax attorney. The good news, however, is that if you hire a tax attorney to help with your tax preparation, those legal fees are deductible.