The general rule is that fees that go toward family court attorneys handling your case related to divorce, child custody or paternity matters are not tax-deductible. The fees are considered by the Internal Revenue Service as covering personal legal matters. Similarly, court administration costs such as filing fees can't be deducted. However, this isn't a hard-and-fast rule, and there are exceptions, such as if your attorney fees are a business or investment expense.
Your attorney's fees and other litigation costs you pay in the tax year may be deductible to the extent that they are incurred for causes deemed ordinary and necessary by the IRS. Three sections of the Internal Revenue Code address the deductibility of fees and serve as a guideline when determining whether to deduct attorney fees. Section 162 provides that expenses incurred in the conduct of your business are deductible, while Section 212 allows you to deduct those expenses that go toward producing taxable income. Section 263 says that you can deduct certain expenses that aim to increase the basis of your asset, for example, if you pay attorney fees toward the management, maintenance or conservation of property held for the production of income.
Deductible Legal Fees
The IRS allows a deduction on legal fees that go toward trying to produce or collect taxable income, such as suing someone for back rent. Some personal legal matters may also be regarded as an income-producing action, such as legal action to collect child support or spousal support. You can deduct fees you paid for tax research and advice on such issues as dependency exemptions for the children or property transfers. It is important that the attorney indicates in your final bill what fees are related to collection activity.
Adjusted Gross Income Requirements
Your adjusted gross income determines your tax liability. Your AGI is your total earnings from all sources of income minus specific deductions as reported on your IRS Form 1040. As a miscellaneous expense, your legal fees are subject to the 2 percent benchmark: You can deduct total miscellaneous expenses only to the extent that they exceed 2 percent of your AGI. You'll need to itemize your deductions and determine if your federal income tax obligation will be lower if you take your itemized deductions instead of your standard deduction.
Taking the Deduction
Allowable attorney's fees are deductible as miscellaneous itemized deductions on your individual tax return. One way to handle the deductible is to separately itemize fees for those services that involved tax advice and those for the production or collection of income. Your attorney will likely have sent you a letter that expressly identifies the deductible services rendered. You'll have to use Schedule A of IRS Form 1040 when taking the deduction -- legal fees for tax advice will be itemized under "miscellaneous expenses," while fees for collection of income will be under "other expenses."
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