How to Deduct Attorney Fees on an Income Tax Return

You can deduct attorney fees using Form 1040.

Everyone likes to find a tax deduction they didn't realize they had. Legal fees are often tax-deductible expenses, but the laws can be complicated and difficult to understand. Deducting your attorney fees on an income tax return correctly is important, because doing it incorrectly can lead to an unwanted audit.

Step 1

Deduct attorney fees paid to collect unpaid alimony. This is acceptable only if the alimony payments are taxable. If your alimony is untaxed, you can't take a deduction for legal fees related to collecting it. This amount is reported as a miscellaneous itemized deduction on your Schedule A.

Step 2

Deduct attorney fees for personal injury cases only if the settlement you receive is taxable. If you receive a non-taxable settlement, the attorney fees are not a tax deduction. The amount of the attorney fee should be subtracted from your total settlement and the difference should be reported as income on your 1040.

Step 3

Deduct legal fees for estate planning if the estate planning involved tax planning advice or property that generates profit. Tax advice should be deducted on Schedule A as a miscellaneous deduction and estate planning advice for property that generates a profit is deducted as a business expense.

Step 4

Deduct legal fees associated with Social Security payment disputes only if your Social Security payments are taxable. If your payments are not taxed, you should not deduct the legal fees. These should be reported on Schedule A as miscellaneous deductions.

Step 5

Deduct any business-related legal costs as a business expense. If you are self-employed, you will deduct your legal costs on your Schedule C or Schedule C-EZ. Attorney fees related to royalties are reported on the Schedule C as well.

Tip

Anytime you are unsure, you should consult with a tax professional. And yes, that consultation is a tax deduction.

Warning

Do not deduct legal fees related to any type of non-taxable income or settlement. This would include disputes over a will or wrongful death suits. As a general rule, if the money involved is not taxed, the legal fees are not a tax deduction.

Do not deduct legal fees related to a divorce or property settlement after a divorce.

Things You'll Need

  • Form 1040

  • Schedule A

  • Schedule C or Schedule C-EZ (if applicable)

  • Receipt for attorney fees incurred

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