Review Of How Many Are Tax Attorney Fees Deductible For Divorce 2023

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

How Many Tax Attorney Fees are Deductible for Divorce?

Introduction

Divorce can be a stressful and costly process, especially when it comes to legal fees. If you're going through a divorce, you may be wondering if you can deduct your tax attorney fees. The answer, as with many tax-related questions, is "it depends." In this article, we'll explore the rules surrounding tax deductions for divorce-related legal fees, so you can make informed decisions about your finances.

Deductible vs. Non-Deductible Legal Fees

First, it's important to understand that not all legal fees related to divorce are tax deductible. The IRS distinguishes between "personal" legal fees, which are not deductible, and "business" or "income-producing" legal fees, which may be deductible. In general, legal fees that are related to producing or collecting taxable income, or to managing or preserving property that produces taxable income, may be deductible.

When Tax Attorney Fees are Deductible

If you hire a tax attorney to help you with legal issues related to your divorce, such as negotiating the division of assets or determining the tax implications of spousal support, those fees may be deductible. However, there are some additional rules to keep in mind. First, the legal fees must be paid in connection with a taxable event, such as the production or collection of income. This means that legal fees related to child custody or visitation, or to the division of non-taxable assets like personal property, are not deductible. Second, you can only deduct legal fees to the extent that they are "reasonable and necessary." This means that if you hire an attorney to handle both tax issues and non-tax issues related to your divorce, you may only be able to deduct a portion of the fees. Finally, you must itemize your deductions on your tax return in order to claim a deduction for legal fees. If you take the standard deduction, you won't be able to deduct your legal fees.

How Much Can You Deduct?

If your tax attorney fees are deductible, you can generally deduct them as a miscellaneous itemized deduction on Schedule A of your tax return. However, miscellaneous deductions are subject to a 2% floor, which means that you can only deduct the amount of your legal fees that exceeds 2% of your adjusted gross income (AGI). For example, if your AGI is $50,000 and you paid $3,000 in tax attorney fees, you can only deduct $1,000 ($3,000 - 2% of $50,000 = $1,000).

Other Tax Issues to Consider

In addition to legal fees, there may be other tax issues to consider when going through a divorce. For example, you'll need to determine your filing status (married filing jointly, married filing separately, or head of household) for the tax year in which your divorce was finalized. You'll also need to determine how to divide any joint assets, such as retirement accounts or real estate, and how to handle any joint debts. It's a good idea to work with a qualified tax professional, in addition to your attorney, to ensure that you're making informed decisions about your tax situation.

Conclusion

In summary, tax attorney fees related to divorce may be tax deductible if they are paid in connection with a taxable event, are reasonable and necessary, and exceed the 2% floor for miscellaneous itemized deductions. However, not all legal fees related to divorce are deductible, and there may be other tax issues to consider as well. Working with a qualified tax professional can help you navigate the complex tax rules surrounding divorce and ensure that you're making the best decisions for your finances.

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