January isn’t a fun month for many people. The excitement of Christmas and the New Year are over. It’s cold. Days are still really short.
And there’s taxes.
If you’re a business owner, tax season can be especially complex as you try to sort finances and figure out deductions. On the bright side, by properly utilizing deductions, you can greatly reduce your tax expenses. You just need to know where to look.
One Place to Look is Legal Fees
Do you have legal fees you’ve paid in the past year? You’re probably asking yourself whether or not they’re deductible.
The answer is….possibly.
First, let’s look at what you can’t deduct.
Personal Lawyer Fees aren’t Deductible
Did you injure someone? Are you going through a divorce? Were you involved in a lawsuit? Whatever the case may be, if it’s a personal matter that doesn’t directly involve your business, it’s non-deductible.
As for Business Legal Fees…
Much like any business expense, legal fees for your business are eligible for deductions. However, you might not be able to write off every lawyer bill you’ve paid. If your business is your fulltime source of income, it is possible you can deduct most (if not all) legal expenses for your business.
However, if it’s a part-time project, your ability to deduct is limited.
Lawsuits and Contingent Fees
Were your legal fees based on whether or not you won the case? Let’s say you’re suing someone and you win. Per your agreement with your attorney, you pay 30% of your settlement to the lawyer. Despite the fact that you only received 70% of the money won, you’ll actually be taxed for the full 100%.
You’ll then need to figure out how to deduct the other 30% or else pay taxes on money that was never actually yours.
On this upside, this doesn’t apply to personal injury cases. If you’re injured and receive damages, that money is tax free.
Enlist Professional Help
The best way to ensure your legal taxes are properly handled is to consult a tax professional. For our clients, we’ll make sure to provide whatever information is necessary for them to complete your taxes, and we’ll be happy to answer questions as best as can.
For lawyers in Springfield, Ohio, the team at Michael T. Edwards is here for you.