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Are Tax Attorney Fees Tax Deductible? A Comprehensive Guide

Introduction

When facing a tax dispute or audit, the assistance of a tax attorney can prove invaluable. However, the cost of hiring a tax attorney can be quite expensive. One question that many taxpayers ask is whether tax attorney fees are tax deductible. In this article, we will explore the rules surrounding tax attorney fees and whether they are deductible.

What are Tax Attorney Fees?

Tax attorney fees are the charges for legal representation or advice provided by a tax attorney. These fees can include charges for preparing and filing tax returns, representation in an audit or tax dispute, and general tax planning advice. Tax attorney fees can vary widely depending on the complexity of the issue and the experience of the attorney.

Are Tax Attorney Fees Tax Deductible?

The answer to this question is, it depends. In general, tax attorney fees are deductible if they are related to the production of income or the management of property held for the production of income. However, they are not deductible if they are related to personal expenses or tax planning for personal investments.

When Can You Deduct Tax Attorney Fees?

To deduct tax attorney fees, they must be related to one of the following: - Production of income: If the tax attorney fees are incurred to produce income, they are generally deductible. For example, if you hire a tax attorney to help you negotiate a business deal or to represent you in a tax dispute related to your business, the fees are deductible. - Management of property for the production of income: If the tax attorney fees are incurred to manage property that produces income, they are generally deductible. For example, if you hire a tax attorney to help you with estate planning or to represent you in a tax dispute related to rental property, the fees are deductible.

When Can't You Deduct Tax Attorney Fees?

Tax attorney fees are not deductible if they are related to personal expenses or tax planning for personal investments. For example, if you hire a tax attorney to help you with your personal tax returns or to advise you on personal investments, the fees are not deductible.

How Do You Deduct Tax Attorney Fees?

To deduct tax attorney fees, you must itemize your deductions on Schedule A of your tax return. The fees are reported on line 22 of Schedule A as "Job Expenses and Certain Miscellaneous Deductions." However, these deductions are subject to a 2% floor, which means that you can only deduct the amount that exceeds 2% of your adjusted gross income.

Other Considerations

It is important to note that tax attorney fees are not the same as tax preparation fees. Tax preparation fees are the charges for preparing and filing tax returns and are deductible as a miscellaneous itemized deduction subject to the 2% floor. However, tax preparation fees can no longer be deducted as of the 2018 tax year due to changes in tax law.

Conclusion

In conclusion, tax attorney fees can be deductible if they are related to the production of income or the management of property held for the production of income. However, they are not deductible if they are related to personal expenses or tax planning for personal investments. It is important to keep accurate records of your tax attorney fees and consult with a tax professional to determine whether they are deductible in your specific situation.

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