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

Understanding Tax Attorney Fees Deductibility with the IRS

Introduction

As a taxpayer, you may need to seek the services of a tax attorney at some point. Tax attorneys come in handy when facing tax disputes, audits, or when filing your taxes. However, the services of tax attorneys do not come cheap, and you may wonder whether you can deduct the fees you pay to them. In this article, we will explore the deductibility of tax attorney fees with the IRS.

Background Information

The IRS allows taxpayers to deduct certain expenses incurred in the process of earning income. These expenses are known as deductible expenses, and they reduce your taxable income. Deductible expenses can either be classified as itemized deductions or above-the-line deductions. Itemized deductions are claimed on Schedule A of Form 1040, while above-the-line deductions are claimed on the first page of Form 1040.

Tax Attorney Fees Deductibility

Tax attorney fees are classified as miscellaneous itemized deductions, and they are subject to a 2% adjusted gross income (AGI) floor. This means that you can only deduct the portion of your miscellaneous itemized deductions that exceeds 2% of your AGI. For instance, if your AGI is $50,000, you can only deduct the portion of your miscellaneous itemized deductions that exceeds $1,000 (2% of $50,000).

Exceptions to the 2% AGI Floor

There are some exceptions to the 2% AGI floor, and they include the following:

• Tax preparation fees
• Unreimbursed employee expenses
• Investment fees
• Safe deposit box rental fees
• Casualty and theft losses

If your tax attorney fees fall under any of the above exceptions, you can deduct them in full without being subject to the 2% AGI floor.

When Tax Attorney Fees are Deductible

Tax attorney fees are deductible when they are incurred for the production or collection of income, or for the management, conservation, or maintenance of property that is held for the production of income. For instance, if you hire a tax attorney to help you with a tax dispute related to your rental property, the fees you pay to the attorney are deductible.

When Tax Attorney Fees are Not Deductible

Tax attorney fees are not deductible when they are incurred for personal reasons. For instance, if you hire a tax attorney to help you with a divorce settlement, the fees you pay to the attorney are not deductible.

Conclusion

In conclusion, tax attorney fees are deductible, but subject to the 2% AGI floor. To claim tax attorney fees as a deduction, you must itemize your deductions and ensure that the fees are incurred for the production or collection of income, or for the management, conservation, or maintenance of property that is held for the production of income. If your tax attorney fees fall under the exceptions to the 2% AGI floor, you can deduct them in full.

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