Before the year 2018, many aspects of legal fees incurred by a person were tax deductible. These included attorney fees or legal fees for real estate and several investments. However, with the change of the US Tax Code in 2018, many such deductions are no longer applicable.
The attorney fees for most lawsuits and investments are not tax deductible and will not show any advantages in tax forms. This includes estate planning, purchasing real estate, divorce, child custody, lawsuit for compensatory damages, and several similar matters.
To be clear, attorney fees include all costs associated with the hiring of a lawyer. This includes the attorney’s charges, court fees, and miscellaneous charges like traveling or others incurred for the legal representation.
It can be said that the importance of a legal matter, presumed or otherwise, doesn’t affect whether the attorney fee will be tax deductible.
The most relevant scenario where attorney fees are tax deductible relates to the operation of a business. Since legal issues can directly cause profit, loss, or similar effects on a business, the IRS allows this to be tax deductible.
Of course, this also assumes that you have maintained a separation of personal and business finances.
There are a few aspects of business legal fees that can qualify for tax deductions. For example, attorney fees in negotiating a contract or defending a payment can find use for tax deductions.
Attorney fees related to rentals and royalties on properties, whistleblower claims, and unlawful discrimination claims also fall in this category. Resolving tax issues also falls into this category. Various forms and formalities might be necessary when filing taxes to claim such deductions.
It’s worth noting that things can be complex and not as straightforward as they seem. So, it’s no wonder that many businesses do rely on attorney advice to deal with their tax forms.