Legal and Professional Fees That Can be Deducted

When it comes to your taxes, there are a variety of fees that you can deduct. But some of these are only available to you if you are filing business taxes and cannot be used for your personal taxes. But with that, if you have a small business that is run as a proprietorship you can use these fees on the business part of your taxes.

The IRS states that you can use the fees charged by accountants and lawyers as legal and professional fees but there are some conditions with this and times you can't. It is important that you know what you can deduct so that your taxes are accurate when you file them.

Personal Expenses

Even though you are filing your business taxes as part of your personal taxes for a proprietorship, it doesn't mean that you can use your personal expenses. For instance, if you had to contact a lawyer to create a will, you cannot use that on your taxes. But if you had contacted a lawyer in regards to setting up a contract for customers to sign, you can use that expense. If you are visiting the same lawyer for both items at the same time, make sure that you get an itemized bill or two separate bills for income tax purposes.

Note that if you are getting a professional accountant to do your personal taxes, you will need to get two bills. Your business can pay and use the cost for the portion of the bill that relates to the business but you cannot use the cost for filing the personal taxes. Ask your accountant to split the bill if possible. If they can't, ask or determine what percentage of the work was related to the business and split the bill accordingly.

None Deductible Expenses

Some of these items can be tricky when it comes to income tax deductions. If in doubt, ask your tax accountant or visit the IRS website.

If you hire a lobbyist for your business, be aware that these fees are not deductible at tax time but are a valid business expense.

Legal fees or any other fees incurred for buying a business asset such as property cannot be used as a legal or professional fee. Instead, the cost is added to the value of the asset which is then depreciated over the life of the asset.

Another exception is any fees associated with starting your business. If you contact a lawyer to help you set up your business when registering it or you get an accountant to help you with a system, you cannot use these on your business taxes. These are part of your business setup and you deduct them from your Schedule C for a sole proprietorship.

Be aware that if you hire any independent contractors, you will be required to issue a 1099-MISC form to them. This needs to be done if you paid them more than $600 in a calendar year. As with anything, there are exceptions which you will want to check on the IRS website.