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Are Tax Attorney Fees Deductible? What You Need to Know in 2023

Introduction

As the tax season approaches, many taxpayers wonder if they can deduct the fees they paid to their tax attorney. The answer to this question is not straightforward, and it depends on several factors. In this article, we will explore whether tax attorney fees are deductible and what you need to know about claiming this deduction.

First things first: What are tax attorney fees?

Tax attorney fees are the fees paid to a lawyer who specializes in tax law. Tax attorneys can help you with various tax-related issues, including tax planning, tax compliance, and tax controversy. The fees charged by tax attorneys can vary depending on the complexity of the case and the attorney's experience.

When can you deduct tax attorney fees?

Tax attorney fees may be deductible in certain situations. If you incur tax attorney fees to produce or collect taxable income, the fees may be deductible as a miscellaneous itemized deduction on Schedule A of your tax return. However, there is a catch: miscellaneous itemized deductions are subject to a 2% floor, which means that you can only deduct the amount that exceeds 2% of your adjusted gross income.

What if you hire a tax attorney for personal reasons?

If you hire a tax attorney for personal reasons, such as to contest a speeding ticket or to draft a will, the fees are not deductible. The IRS considers these fees to be personal expenses that are not related to the production or collection of taxable income.

What if you hire a tax attorney to resolve a tax dispute?

If you hire a tax attorney to resolve a tax dispute, such as an audit or a collection matter, the fees may be deductible. However, the deductibility of these fees depends on the nature of the dispute. If the dispute relates to your business, the fees may be deductible as a business expense. If the dispute relates to your personal taxes, the fees may be deductible as a miscellaneous itemized deduction.

What if you settle a tax dispute?

If you settle a tax dispute, the attorney fees you paid to resolve the dispute may be deductible. However, the deductibility of these fees depends on the amount of the settlement. If the settlement is related to your business, the fees may be deductible as a business expense. If the settlement is related to your personal taxes, the fees may be deductible as a miscellaneous itemized deduction.

Can you deduct tax attorney fees for tax planning?

If you hire a tax attorney for tax planning purposes, the fees may be deductible. Tax planning involves analyzing your financial situation and developing strategies to minimize your tax liability. However, the deductibility of these fees depends on the nature of the planning. If the planning relates to your business, the fees may be deductible as a business expense. If the planning relates to your personal taxes, the fees may be deductible as a miscellaneous itemized deduction.

What if you hire a tax attorney to prepare your tax return?

If you hire a tax attorney to prepare your tax return, the fees are not deductible. The IRS considers tax preparation fees to be personal expenses that are not related to the production or collection of taxable income.

Conclusion

In conclusion, tax attorney fees may be deductible in certain situations. If you incur tax attorney fees to produce or collect taxable income, the fees may be deductible as a miscellaneous itemized deduction. However, there are several factors to consider, such as the nature of the dispute or planning, and the 2% floor. As always, it's best to consult with a tax professional to determine whether you can deduct tax attorney fees on your tax return.

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