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Six Ways to Reduce Legal Fees Tax-Wise from IRS Officers

Wednesday, May 30, 2012

Paying legal fees is bad enough, but if you do not do it right, you can owe IRS officers on top of those legal fees. Therefore, use your legal fees as a way to reduce your tax debt and vice versa.

Deducting Personal Legal Fees

As a business owner, you are able to deduct a lot of things, but IRS officers will not tolerate deductions for personal legal fees. Therefore, if you are being sued, those legal fees cannot be associated with your business tax return.

Tax Advice Legal Fees are Deductible

According to IRs officers, any legal fees used for tax advice are deductible under the federal tax code. Whether you were seeking advice for property tax, payroll tax or even negotiating a tax debt, IRS officers state that you can deduct those fees from your tax liability.

All Business Legal Fees are Deductible

If you own a business, any legal fees associated with your business are deductible according to IRS officers. Therefore, utilize this to your advantage and reduce your tax liability by claiming annual fees, one-time advice fees and more from your tax return.

Investment Legal Fees are Complicated

Investment legal fees are shaky and not all IRS officers are aware of the codes surrounding them. In the event a legal fee does not apply directly to your business, you can still deduct it if it applies to investment advice. This is considered a miscellaneous itemized deduction, but be aware IRS officers will question any deductions that do not stand within the normal parameters, so only use this deduction if absolutely necessary and if you have documentation backing up the claim on your tax return.

Contingent Lawyer Fees

Contingency fees are those charged by attorneys in lawsuits and settlements. Instead of a flat fee, attorneys will receive a percentage of the winnings. For example, you receive a $100,000 lawsuit, but the attorney charges 10 percent and therefore takes $10,000 from you. If you claim the attorney fee of $10,000 on your tax return, you are now liable for the entire $100,000 debt according to IRS officers. Therefore, be cautious about claiming attorney fees that are contingency based. IRS officers recommend speaking to a tax professional on how to claim contingency based fees to ensure you do not pay tax on the entire debt, especially if you lost 10 to 40 percent of it to an attorney.

If you need help with your legal fee claims or need assistance negotiating with IRS officers, contact the professionals at My Tax Attorney today. At My Tax Attorney you will receive a trained professional who understands the current state and federal tax codes and who can help you negotiate with IRS officers quickly and efficiently regarding your tax debt.

Looking to find out what your state laws are regarding payroll taxes?  Search locally on Google for your state and include the keyword bank levy.  Check out this 2011 IRS table for figuring out the amount that’s exempt from wages, salaries and other incomes.  The IRS Publication 15, or Circular E Employer’s Tax Guide, might also be helpful.  Here’s a link to the Beverly Hills Bar Association