If you have to pay a lawyer for their services, you’ll likely be interested making it less expensive in most any way you can. There are some legal fees that are tax deductible, but these types of legal fees tend to have to do with taxes themselves and finance, rather than with personal legal bills. You’ll have to talk to an accountant to find out for sure, but here are some general guidelines that those hiring a lawyer should be aware of.
Your Personal Expenses Probably Can’t Be Deducted
Suing over a car crash? Medical malpractice? The IRS doesn’t have any way for you to deduct such expenses, at present. Whatever you have to pay the attorney will be an expense. The one upside to this is that many personal legal fees – criminal defense not included – will be payable through a contingency agreement. This allows you to pay the lawyer out of whatever they win for you or not at all if they lose your claim. This is about the most painless way to go.
Working on Taxes with a Lawyer
If you have to go to a lawyer specifically for tax advice, you may be able to deduct the fees you pay, according to Forbes. You’ll have to be careful about this, however, as you don’t want to end up stuck with a bill at the end of the year because of a simple mistake. Ask the attorney you’re working with whether or not their fees will be deductible. The same applies if you’re working with an accountant. Be sure to ask before you assume you can deduct what they do for you off of your taxes.
What If I Win a Claim?
This gets tricky. If you’re paid out a jury award because you were injured physically, it’s likely that the award will not be taxed by the feds. This is because you’re not really making income from a legal standpoint. In a great many personal injury claims, however, there is usually an amount take on for pain and suffering or other emotional damage. This may well be taxable.
Speak with your attorney about these matters and make sure you talk to an accountant, as well. Unfortunately, there’s no yes or no answer to whether or not attorney fees and jury awards are taxed. You’ll have to consult with your attorney to get the answer to that question, and it varies depending upon the circumstances.