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When are attorney fees tax deductible On what basis? from thelawadvisory.com

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When it comes to taxes, hiring a tax attorney can be a wise investment. However, one question that often arises is whether the fees paid to a tax attorney are tax-deductible. In this article, we will explore this topic and provide you with everything you need to know about tax attorney fees and their deductibility.

Understanding Tax Attorney Fees

Tax attorneys are legal professionals who specialize in tax law. They help individuals and businesses navigate the complex world of tax regulations, filings, and compliance. Tax attorneys can provide a range of services, from tax planning and preparation to representing clients in tax disputes and litigation.

Are Tax Attorney Fees Deductible?

The short answer is yes, tax attorney fees are deductible. However, there are some restrictions and limitations you need to be aware of. First, tax attorney fees are only deductible if they are related to the production of income or the management, conservation, or maintenance of property held for the production of income. In other words, if you hire a tax attorney to help you with personal tax issues, such as filing your annual tax return, those fees are not deductible.

How to Deduct Tax Attorney Fees

To deduct tax attorney fees, you need to itemize your deductions on your tax return using Schedule A. You can deduct tax attorney fees as a miscellaneous itemized deduction, subject to a 2% adjusted gross income (AGI) limitation. This means that you can only deduct the amount of your miscellaneous itemized deductions that exceeds 2% of your AGI.

Exceptions to the 2% AGI Limitation

There are some exceptions to the 2% AGI limitation. For example, if you are self-employed and hire a tax attorney to help you with your business taxes, those fees are fully deductible as a business expense. Additionally, if you hire a tax attorney to help you with a tax dispute or litigation, those fees may be fully deductible, regardless of whether they are related to the production of income or the management, conservation, or maintenance of property held for the production of income.

Other Considerations

It is important to note that not all legal fees are tax-deductible. For example, fees paid to a divorce attorney or a criminal defense attorney are not tax-deductible. Additionally, if you receive a settlement or award that includes attorney fees, you cannot deduct those fees as a separate itemized deduction.

Conclusion

In conclusion, tax attorney fees are deductible, but there are some restrictions and limitations to be aware of. If you are considering hiring a tax attorney, it is important to keep track of all fees paid and consult with a qualified tax professional to ensure that you are taking full advantage of all available deductions.

References

- IRS Publication 529: Miscellaneous Deductions - IRS Publication 17: Your Federal Income Tax - IRS Topic No. 508: Business Expenses - IRS Topic No. 513: Legal and Professional Fees

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