How To Use Legal Fees as a Tax Deduction

The IRS or Internal Revenue Service lets taxpayers use their tax deduction for legal expenses in certain situations. These might include issues related to business or personal tax cases, alimony expenses, or divorce. Business legal fees are usually considered as a business cost on Schedule C. Other legal expenses are integrated into Schedule A’s itemized deductions. Here is how to use legal fees as a tax deduction:

  • Consult your attorney for a thorough breakdown of services. Include the general intention in each bill. A breakdown will help you understand the purpose and scope of each item. You must understand if each bill is nondeductible or deductible.
  • Assemble the records and documentations of the legal expenses you have paid. Organize the expenses per category. Determine the grounds why they can be considered tax deductible. Ask your attorney or peers to review and double check the data included. Make sure you have soft copies, as well as photocopy of the print outs for safekeeping.
  • Subtract legal expenses for your non-business tax issues regarding line 21 in Schedule A. Include issues about determination, tax preparation, refunds and payments of all non-business taxes.
  • Utilize Schedule A’s line 27 or Other Miscellaneous Deductions. It will help you understand tax deductions in terms of your legal expenses that you acquired in your job. Collect or produce taxable personal income. Alimony or divorce settlements can be included in this section as well.
  • Complete Schedule A. After that, file it through Form 1040 if the itemized deductions surpass the standard deduction amount. The data in Form 1040 includes name, address, SSN, filing status, exemptions, income, adjusted gross income, tax and credits, other taxes, payments, refunds, amount you owe, third party designee, and signature box. Here is an online copy of Form 1040.
  • Utilize Schedule C to subtract legal expenses in businesses. Review the attorney’s bills in your business so you can deduct personal legal charges that might be included in the billing. These charges might reduce personal deductions from miscellaneous on Schedule A. The general rules in deducting attorney’s fees deals with items such as when you’re trying to collect or produce taxable income. This also applies when you need to get, collect, and determine tax refund.
  • Determine the situations where you can use tax deduction. You can pay them for tax advice, attempting to ask your former spouse to pay alimony, getting your share from class action settlement, and advice from estate taxes.
  • Compute your legal expenses for business intentions. After that, list the amount onto line 17. The amount can be merged with other professional charges like CPA’s billings.
  • Finish Schedule C. Then file it through Form 1040.

Check all data under the guidance of your attorney. Always ask his advice before making a legal decision. Remember that proper filing of taxes is a civic duty. Improperly filed taxes can later on come back to you and haunt you in various situations. Pay your taxes promptly and properly to avoid future cases in terms of your finances.


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