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How do I deduct legal and professional fees on my taxes?

TL;DR

Legal and professional fees are generally deductible if they are ordinary and necessary expenses directly related to your business. However, fees related to personal matters or capital expenses are not deductible.

Detailed Answer

Legal and professional fees can be deducted if they are incurred in the course of running your business and are both ordinary (common and accepted in your industry) and necessary (helpful and appropriate for your business). Examples include fees paid to accountants, lawyers, or consultants for business advice or services. Fees related to personal legal matters, such as divorce or personal tax advice, are not deductible. Additionally, fees that are capital in nature, such as those incurred for acquiring a business asset, must be capitalized and depreciated over time rather than deducted in the year incurred.

Where to Put It on the Tax Form

Schedule C, Line 17 for sole proprietors and single-member LLCs. For partnerships, report on Form 1065, and for corporations, report on Form 1120.

Real World Example

A freelance graphic designer hires an accountant to prepare their business tax return and pays $1,200 for the service. This fee is deductible as a business expense on Schedule C, Line 17, reducing the designer's taxable income.

Audit Risk & Documentation Tips

Audit risk is moderate. Keep detailed records, including invoices, contracts, and proof of payment, to substantiate the business purpose of the fees. Ensure that the services are clearly related to your business activities and not personal in nature.

IRS Reference

IRS Publication 535, Business Expenses; IRC §162.

Relevant Industries

FreelancersConsultantsSmall Business OwnersReal Estate Agents

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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 15, 2025

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