Are Lawyers Fees Tax Deductible?

If you are dealing with a legal issue, you may be wondering if you are able to deduct lawyers fees from your taxable income. In some cases, you can, but unfortunately, there are many types of personal legal fees that are not tax deductible.

Legal Fees That Are Deductible

Legal fees may be deductible in the following instances, regardless of whether you pursued a case and won.

• Whistleblower claims (if the IRS grants a whistleblower award).
• Unlawful discrimination claims— job-related discrimination claims on account of race, sex, religion, age, or disability.
• Certain property claims against the federal government
• Ordinary and necessary expenses in direct relation to operating your business (e.g., negotiating or drafting contracts for the sale of goods or services, tax advice)
• Resolving tax issues for your business (e.g., collecting money owed by a customer, defending a lawsuit over a work-related claim, defending against trademark, copyright, patent claims,
• etc.)
• Farm income and expenses
• Rentals or royalties on properties for which you earn income (as long as your rental activity qualifies as business)
• Adopting a child

Legal Fees That Are Not Deductible

As a general rule, lawyers fees related to personal issues, including civil cases, are not tax deductible. Those types of issues include the following:

• Personal injury or wrongful death claims
• Civil or criminal charges related to personal relationships
• Defending civil or criminal charges (e.g., personal injury claim, premises liability claim, drunk driving charge, etc.)
• Property claims or settlements
• Estate planning (e.g., will preparation or settling a will/probate matter)
• Divorce
• Collecting alimony from an ex-spouse
• Obtaining child custody or child support
• Closing the purchase of your home or resolving title issues or disputes
• Breach of promise to marry
• Title preparation
• Non-business tax issues or advice
• Name changes
• Determining, collecting, or refunding taxes

Many taxpayers were formerly able to claim itemized deductions for various types of personal legal fees. However, the 2017 Tax Cuts and Jobs Act (TCJA) changed many tax laws, including eliminating itemized deductions for 2018 through 2025. As a result, taxpayers no longer have the leeway they used to.

Legal Settlements and Court Awards

If you successfully pursue a personal injury case and receive a settlement or award, the amount of compensation you recover before legal fees typically must be included as your gross income when filing taxes. In other words, attorneys fees are not deductible, and although they will typically take a percentage of your settlement as their contingency fee, for tax purposes, you will be treated as having received 100% of the settlement. However, there are unique tax laws related to personal injury awards, and there may be portions that are not taxable.

Check With an Attorney

No matter what situation you are in, it is always best to consult your attorney if you are concerned about whether their fees will be tax deductible in your case. You also have the right to ask that your attorney prepare a billing statement that details which fees are deductible and which are not.