Legal fees can be a major expense for businesses, but the good news is that they may be tax deductible. This article will provide an overview of what legal fees are deductible and how to report them on your taxes. When it comes to filing taxes, legal fees related to the operation of your business may be deductible if they are considered ordinary and necessary expenses. Ordinary expenses are those that are common and accepted in your industry, while necessary expenses are those that are helpful and appropriate for your business.
For example, if you own a restaurant, legal fees related to obtaining a liquor license would be considered an ordinary and necessary expense. It is important to note that legal fees related to personal matters such as a divorce or a family member suing you for slander are not deductible. These types of legal fees are considered personal expenses and cannot be deducted. When reporting deductible legal fees on your taxes, you should include them on Form 1040, Schedule C.
This form is used to report income or loss from a business you operate or a profession you practice as a sole proprietor. In conclusion, legal fees can be deductible if they are ordinary and necessary expenses related to the operation of your business. These types of expenses should be reported on Form 1040, Schedule C. However, legal fees related to personal matters such as a divorce or a family member suing you for slander are not deductible.