It’s that time of year again. We’re at the height of tax season. While many have filed already, countless others are still crunching numbers. And let’s face it, yearly changes to tax codes, income bracket thresholds, withholdings and more can make this process tricky. One figure you might want to make note is if you incurred any legal fees during the year. They just might be tax deductible. However, they are most likely not, especially when it comes to personal legal matters.
According to the IRS, any legal fees related to personal issues can’t be included in itemized deductions. These include, but are not limited to:
- Fees related to nonbusiness tax issues or tax advice.
- Fees that you pay in connection with the determination, collection or refund of any taxes.
- Personal legal expenses, including:
- Fees for defending civil or criminal charges that arise from your participation in a political campaign
So, what legal fees can be deducted from taxes? The IRS provides the following guidance:
What Can Be Deducted
- Fees that are ordinary and necessary expenses directly related to operating your business
- Fees for resolving tax issues, advice or preparation of tax forms related to your business
- Fees for rentals or royalties on properties for which you earn income
- Fees related to farm income and expenses
- Fees related to whistleblower claims
- Fees related to unlawful discrimination claims
Additionally, the following legal fees, although not associated with your workplace, are also deductible:
- Fees related to adopting a child if you qualify for the federal adoption tax credit
If you still have questions on what legal fees can and cannot be deducted, contact a tax preparation professional or visit irs.gov.