Tax-wise Tips To Reduce Your Legal Expenses

No one likes to pay large amounts in legal fees

, however one may be relieved to know that certain tax rules can help reduce your bills. While it is almost impossible for taxpayers to be aware of their various tax rules, a tax planner can be of great help. Here are a few tips that can help reduce legal fees.

* Personal Legal Fees are not deductible.

Most of the personal legal expenses like divorce, etc. are not deductible.

* Legal Fees for Tax Advice Are Deductible.

Legal fees for tax advice whether tax planning, tax qualifies, income, estate, gift, property, sales, use and excise tax, (even though the taxes are personal) are deductible.

* Business Legal Fees Are Deductible.

Any legal fees incurred in business are deductible by corporations, LLCs, partnerships and proprietorships. However, some fees must be capitalized and added to the basis of assets.

* Investment Legal Fees Are Miscellaneous Itemized Deductions.

If legal expenses dont relate to your business but only to investments, you can still deduct them but usually only as a miscellaneous itemized deduction. That means a 2% threshold, phase-outs and (worst of all) Alternative Minimum Tax.

* Beware Contingent Lawyers Fees.

If you recover $1 million in a lawsuit and owe 40% to your contingent fee lawyer, as you have $600,000 the tax has to be paid only on this amount. In a pure personal physical injury the entire recovery is tax-free, so therefore it doesnt usually matter whether you consider the recovery including legal fees. Usually, there is often confusion about what is and is not tax-free.

* Legal Fees in Employment Cases Are Fully Deductible.

Most employment lawsuit recoveries include either wages (on a Form W-2) or non-wage income (on a Form 1099), even if your lawyer receives 40%, you still must include 100% in your income. However, it is possible to deduct the legal fees above-the-line,before reaching adjusted gross income. That means you have no taxno regular tax and no AMTon the legal fees.

Tax deductions can alleviate some of the pain of high legal bills. The tax analysis can be complicated, and you may incur legal fees falling into more than one category. There are often several ways of allocating fees, so planning can pay off. Take the help of an expert who could offer you the best tax solutions and give you assistance in other taxes like a href="http://www.articlesnatch.com/Article/Understanding-The-Basics-Of-FBAR-Reporting/4293914">FBAR, Overseas voluntary disclosure etc.

by: Gladeyas

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