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

Are Tax Attorney Fees Deductible and How Much Can You Deduct?

Introduction

Paying for a tax attorney can be expensive, but it's often necessary to navigate complex tax laws and regulations. However, one question that arises is whether or not tax attorney fees are tax-deductible, and if so, how much can you deduct? In this article, we will explore the rules and guidelines for deducting tax attorney fees on your tax return.

When are Tax Attorney Fees Deductible?

Tax attorney fees are deductible as a miscellaneous itemized deduction on your tax return, but there are some rules and limitations that apply. First, you must itemize your deductions on Schedule A of Form 1040 to claim the deduction. Additionally, the total amount of miscellaneous itemized deductions must exceed 2% of your adjusted gross income (AGI) before any deduction can be claimed.

Types of Tax Attorney Fees that are Deductible

There are certain types of tax attorney fees that are deductible, including fees paid for tax advice, tax planning, and representation in tax-related disputes. However, fees paid for general legal services, such as drafting a will or handling a divorce, are not deductible as they do not relate specifically to taxes.

How Much Can You Deduct?

The amount of tax attorney fees that you can deduct is limited to the portion that exceeds 2% of your AGI. For example, if your AGI is $100,000 and you paid $3,000 in tax attorney fees, you can only deduct $1,000 ($3,000 - $2,000). Additionally, there is a cap on the total amount of miscellaneous itemized deductions that can be claimed, which is 2% of your AGI.

Exceptions to the 2% AGI Limitation

There are certain exceptions to the 2% AGI limitation that apply to tax attorney fees. If the fees were paid in connection with the production of income that is taxable, such as fees paid for tax advice related to a rental property or investment portfolio, they may be deductible without regard to the 2% AGI limitation.

How to Claim the Deduction

To claim the deduction for tax attorney fees, you must itemize your deductions on Schedule A of Form 1040. You must also keep detailed records of the fees paid and the purpose of the services provided. It's important to note that the deduction for tax attorney fees is subject to scrutiny by the IRS, so it's essential to keep accurate and complete records.

Conclusion

In summary, tax attorney fees are deductible as a miscellaneous itemized deduction on your tax return, subject to certain rules and limitations. The fees must be related specifically to taxes, and the total amount must exceed 2% of your AGI before any deduction can be claimed. As always, it's important to consult with a qualified tax professional to ensure that you are taking advantage of all available deductions and credits on your tax return.

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