Are Attorney Fees Tax Deductible?

Posted in General Law Firm on August 3, 2022

If you or a loved one have been injured due to the negligent actions of someone else, you may need to hire an attorney to help recover compensation for your losses. But are the attorney fees that you pay tax deductible? This is an important question to examine because we all look for ways to catch a break on taxes, so why not examine lawyer fees as well?

Lawyer Fees Are Typically Not Tax-Deductible

When you pay for an attorney, for whatever reason, you will typically not be able to write these legal fees off on your taxes. This includes paying for an attorney to help you with an injury claim, using a lawyer for your divorce process, or even using an attorney to help you incorporate your business or nonprofit.

Of course, everyone wants to save money on their taxes, particularly when it comes to paying out attorney fees. This is almost never going to be an option. There are some circumstances where a few personal legal fees could be tax deductible, but most will not be tax deductible under the current law.

This is different from how it used to be. The recent change came as a result of the passage of the Tax Cuts and Jobs Act of 2017 (TCJA). This law expires in 2025, and its passage made significant changes to itemized deductions on personal taxes. As a result of this law, miscellaneous itemized deductions were taken out of the tax code altogether. Previously, individuals would have been able to claim itemized deductions for their personal legal fees, but they are no longer allowed to do so.

This was not the only type of deduction that was wiped out by the 2017 law. Other types of tax deductions that were previously available but are no longer available include various expenses related to personal injury litigation, deductions for legally changing your name through the court system, divorce settlement costs, child custody expenses, as well as fees related to defense against criminal or civil complaints.

There are some legal fees that are still tax deductible. The 2017 TCJA does leave deductions in place for legal fees related to whistleblower claim rewards as well as legal action arising as a result of employment discrimination claims.

What About Taxes on Your Personal Injury Settlement

It is not all bad news when it comes to taxes related to lawsuits, particularly personal injury lawsuits. In general, any compensation awarded to an individual who files and is successful with a personal injury claim will not have to pay taxes on the settlement or personal injury jury verdict. This includes compensation they receive for medical bills, out-of-pocket expenses, property damage expenses, and pain and suffering losses.

However, it is important to know that any compensation you receive for lost wages due to your injury will be taxed at the regular income rate by the IRS and the state revenue department.

We Encourage You to Speak With an Attorney

If you or somebody you care about has been injured due to the negligence of another party, you need to reach out to a skilled personal injury lawyer in Tennessee immediately. Your lawyer will be your advocate and will help you uncover any possible route for recovering compensation. Even though you may not be able to write off your legal fees, the chances of recovering compensation increase when you have legal assistance by your side.