Legal fees are tax deductible if they are incurred for business reasons. The deduction can be requested on business returns (for example, on Form 1065 for a company) or directly on Schedule C of personal income tax returns. In the case of a legal claim, an important consideration may be the related costs that the company expects to incur; for example, IFRS do not provide specific guidelines on the recognition of related costs. However, according to US GAAP, accounting for related legal costs is subject to an accounting policy choice.
Acceptable accounting policies include calculating costs related to expenses as incurred or accumulating related costs when they are considered likely and reasonably estimable. Anyone who hires an attorney is more likely to incur attorney fees than not. However, the reason the lawyer is hired, whether for a child custody case or for drafting a patent, will affect the treatment of these expenses. This is because not all attorney fees are treated the same, as some of them are tax deductible and others are not.
If you've incurred legal expenses throughout the year, continue reading to see if you're eligible for tax deductions.
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