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Are Legal Fees Tax Deductible

Deduct Legal Fees on Schedule A

Legal fees are tax deductible as an itemized expense if the legal matter warranting the hiring of an attorney relates to your job, such as the need to defend yourself to keep your job. For example, if you are a supervisor at your company and an employee files a discrimination lawsuit against you, the hiring of legal counsel clearly relates to your job and is included in legal fees that are tax deductible on your Form 1040, Schedule A.

Reducing Legal Fees Tax Deduction

Since the IRS treats your job-related legal fees as a miscellaneous expense subject to the 2 percent adjusted gross income-AGI limitation, 100 percent of your legal fees are not tax deductible. When you sum up all of your miscellaneous expenses that are subject to the AGI limitation, only the amount that exceeds 2 percent of your AGI is tax deductible.

IRS Reference: Lawsuit Awards and Settlements