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Are Tax Attorney Fees Deductible in 2023?

Introduction

As we approach tax season in 2023, many taxpayers are wondering if they can deduct their tax attorney fees. The answer is not always straightforward, as it depends on the circumstances of the legal services provided. In this article, we will explore the deductibility of tax attorney fees and what taxpayers need to know.

What are Tax Attorney Fees?

Tax attorney fees are the fees paid to an attorney for legal services related to tax matters. These services may include tax planning, tax return preparation, and representation in tax disputes with the IRS. Tax attorney fees can be significant, especially for complex tax issues.

Deductibility of Tax Attorney Fees

Taxpayers may be able to deduct tax attorney fees as a miscellaneous itemized deduction on Schedule A of their tax return. However, there are some limitations to this deduction. First, the total amount of miscellaneous itemized deductions must exceed 2% of the taxpayer's adjusted gross income. Second, the deduction is subject to a phase-out for high-income taxpayers.

Types of Tax Attorney Fees that are Deductible

Taxpayers can deduct tax attorney fees that are related to the production or collection of taxable income. This includes tax planning and preparation fees. Taxpayers can also deduct fees related to the defense of tax positions taken on a tax return. For example, if the IRS audits a taxpayer's return and the taxpayer hires a tax attorney to represent them, those fees may be deductible.

Types of Tax Attorney Fees that are Not Deductible

Taxpayers cannot deduct tax attorney fees that are related to personal or business expenses that are not related to the production or collection of taxable income. This includes fees related to the sale of a personal residence or the formation of a business. Taxpayers also cannot deduct tax attorney fees that are related to criminal tax issues or tax evasion.

Record-Keeping Requirements

Taxpayers who deduct tax attorney fees must keep detailed records of the fees paid and the services provided. This includes invoices, receipts, and any other documentation related to the legal services provided. Taxpayers should also keep track of the dates and times of any meetings or phone calls with their tax attorney.

Alternative Deductions

Taxpayers who cannot deduct tax attorney fees as a miscellaneous itemized deduction may be able to deduct them as a business expense. This applies to taxpayers who are self-employed or who own a business. However, the fees must be directly related to the taxpayer's business and must be ordinary and necessary expenses.

Conclusion

In conclusion, tax attorney fees may be deductible for taxpayers who incur legal fees related to the production or collection of taxable income. However, there are limitations and record-keeping requirements that taxpayers must adhere to. Taxpayers who are unsure if their tax attorney fees are deductible should consult with a tax professional for guidance.

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