Best Of With Are Tax Attorney Fees Deductible For A Trust 2023

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

Are Tax Attorney Fees Deductible for a Trust?

Introduction

Trusts are legal entities that are used to protect and manage assets. However, trusts are also subject to taxes, and their taxation can be complex. As a result, many trust owners turn to tax attorneys for help. One question that often arises is whether tax attorney fees for a trust are deductible. In this article, we will explore this question in detail.

The General Rule

The general rule for deducting legal fees is that they are deductible if they are paid to either produce or collect taxable income or to help in tax-related matters. However, legal fees that are incurred for personal reasons, such as divorce or child custody, are not deductible.

Exception for Trusts

In the case of trusts, the rules for deducting legal fees are a bit different. Legal fees that are paid to administer a trust are generally deductible, as they are considered to be necessary expenses. However, legal fees that are paid to establish a trust or to create a trust document are not deductible.

Types of Deductible Fees

There are several types of legal fees that are typically deductible for trusts. These include fees for preparing and filing tax returns, fees for preparing trust accountings, and fees for defending the trust in legal proceedings. Legal fees that are paid to defend the trustee against claims of wrongdoing may also be deductible.

Limits on Deductible Fees

While legal fees that are paid to administer a trust are generally deductible, there are limits to how much can be deducted. According to the IRS, legal fees that are paid to administer a trust are subject to the 2% floor on miscellaneous itemized deductions. This means that you can only deduct legal fees that exceed 2% of your adjusted gross income.

Exceptions to the Limits

There are some exceptions to the 2% floor on legal fee deductions. For example, legal fees that are paid to produce or collect taxable income are not subject to the 2% floor. In addition, legal fees that are paid to determine, contest, or claim a refund of any tax are not subject to the 2% floor.

Conclusion

In conclusion, legal fees that are paid to administer a trust are generally deductible, but legal fees that are paid to establish a trust or to create a trust document are not deductible. The types of deductible fees include fees for preparing and filing tax returns, fees for preparing trust accountings, and fees for defending the trust in legal proceedings. However, there are limits to how much can be deducted, and legal fees that are paid to administer a trust are subject to the 2% floor on miscellaneous itemized deductions.

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