Attorney's Fees Tax Deductable

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Are Attorney's Fees Tax Deductible?

It depends. 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 situations are 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, including tax planning and preparation
  4. Beginning in 2005, for fees related to federal unlawful discrimination suits and settlements from class action lawsuits

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

Attorney's fees related to divorce and separation are deductible if they 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. Expenses incurred as the result of obtaining 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 may be deductible.

Do I Need an Attorney?

Tax laws are complex and constantly changing. Although there are various tax preparation programs and services on the market, 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 lawyer can help you.

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Last Modified: 07-15-2014 10:26 AM PDT

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