Can I Write This Off?

Can I write off a business legal retainer?

TL;DR

Yes, a business legal retainer can be deductible if it is an ordinary and necessary expense for your business.

Detailed Answer

A business legal retainer is deductible if it is directly related to your business operations and is considered both ordinary (common and accepted in your trade or business) and necessary (helpful and appropriate for your business). For example, retainers paid for legal advice on contracts, compliance, or other business matters are typically deductible. However, legal fees related to personal matters or capital expenses are not deductible as business expenses.

Where to Put It on the Tax Form

Schedule C (Form 1040), Line 17 for sole proprietors; or on the appropriate line for legal and professional fees on other business tax forms.

Real World Example

A freelance graphic designer pays a retainer to a lawyer for drafting and reviewing client contracts. This expense is deductible as it is directly related to the business operations.

Audit Risk & Documentation Tips

Keep detailed records of the legal services provided, including invoices and contracts. Ensure the retainer is clearly for business purposes. Retain documentation that outlines the nature of the legal services to substantiate the deduction if audited.

IRS Reference

IRS Publication 535, Business Expenses

Relevant Industries

Small BusinessFreelancersConsultantsStartups

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Disclaimer: This is for informational purposes only and should not be construed as tax or legal advice. Always consult your tax advisor.

Page created on July 7, 2025

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