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

Are Tax Attorney Fees Deductible 100?

Introduction

As the tax season approaches, taxpayers are looking for ways to reduce their tax liabilities. One of the most common questions that taxpayers ask is whether tax attorney fees are tax-deductible. 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 100%, and under what circumstances.

What are Tax Attorney Fees?

Tax attorney fees are the fees paid to a tax attorney for legal advice or representation in tax-related matters. The fees can be for preparing tax returns, negotiating with the Internal Revenue Service (IRS), or representing a taxpayer in court.

When are Tax Attorney Fees Deductible?

Tax attorney fees are tax-deductible if they are related to the production or collection of taxable income. For example, if a taxpayer hires a tax attorney to help them with an audit, the fees paid to the attorney would be tax-deductible. Similarly, if a taxpayer hires a tax attorney to help them with a tax court case, the fees paid to the attorney would be tax-deductible.

Limitations on Deductibility of Tax Attorney Fees

While tax attorney fees are tax-deductible, there are limitations on the amount that can be deducted. Taxpayers can only deduct the portion of the fees that is related to tax advice and representation. If the tax attorney also provides non-tax-related services, such as estate planning or business advice, those fees are not tax-deductible.

Alternative Minimum Tax (AMT)

Taxpayers who are subject to the Alternative Minimum Tax (AMT) may not be able to deduct tax attorney fees. The AMT is a parallel tax system that limits certain deductions, including tax attorney fees. Taxpayers who are subject to the AMT should consult with a tax professional to determine whether they can deduct tax attorney fees.

Employer Reimbursement of Tax Attorney Fees

If an employer reimburses an employee for tax attorney fees, the reimbursement is considered taxable income to the employee. However, the employee can deduct the fees as an itemized deduction on their tax return.

Conclusion

In conclusion, tax attorney fees are tax-deductible if they are related to the production or collection of taxable income. However, there are limitations on the amount that can be deducted, and taxpayers who are subject to the AMT may not be able to deduct the fees. Taxpayers should consult with a tax professional to determine whether they can deduct tax attorney fees.

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