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

Are Tax Attorney Fees Deductible Within 30 Days?

Introduction

As the tax season approaches, many taxpayers wonder about the tax-deductibility of attorney fees. Hiring a tax attorney can be a costly expense, and many taxpayers want to know if they can deduct these fees from their taxes. In this article, we will explore whether tax attorney fees are deductible within 30 days and what rules apply.

What Are Tax Attorney Fees?

Tax attorney fees are the costs associated with hiring a tax attorney to assist with tax-related issues. These fees can include legal advice, representation in court or before the IRS, and other related services. Taxpayers may seek the services of a tax attorney if they are facing an audit, dispute with the IRS, or need help with tax planning.

Deductibility of Tax Attorney Fees

Tax attorney fees are generally deductible if they are related to the taxpayer's business or the production of income. However, there are limitations to the deductibility of these fees. Taxpayers are only allowed to deduct the portion of the fees that exceed 2% of their adjusted gross income (AGI).

Timing of Deductibility

Taxpayers can deduct tax attorney fees in the year they are paid. However, if the fees are paid in advance, they must be allocated over the period to which they apply. For example, if a taxpayer pays $6,000 in tax attorney fees for representation in an audit that spans two years, they can deduct $3,000 in each year.

30-Day Rule

There is no specific rule that limits the deductibility of tax attorney fees to within 30 days. However, taxpayers must meet the general requirement of deducting expenses in the year they are paid or incurred. If a taxpayer pays tax attorney fees on December 31, they can deduct them on that year's tax return, even if the services are not completed until the following year.

Exceptions to the 2% AGI Limitation

There are some exceptions to the 2% AGI limitation on the deductibility of tax attorney fees. For example, taxpayers who are self-employed can deduct these fees as a business expense, rather than as a miscellaneous itemized deduction subject to the 2% AGI limitation.

Alternative Minimum Tax

Taxpayers who are subject to the alternative minimum tax (AMT) may not be able to deduct tax attorney fees at all. The AMT is a separate tax system that limits the amount of certain deductions, including miscellaneous itemized deductions like tax attorney fees.

Conclusion

Taxpayers who hire tax attorneys may be able to deduct their fees, but there are limitations to the deductibility. Taxpayers must meet the general requirement of deducting expenses in the year they are paid or incurred, and the fees must be related to the production of income or the taxpayer's business. Taxpayers should consult with a tax professional to determine the deductibility of their tax attorney fees based on their specific circumstances.

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