According to the Internal Revenue Service (IRS), “to be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.” If fees paid to a law office, to form a business or to work on a business matter for example, are both common and accepted in the industry as well as helpful and appropriate for your business, then they are likely tax deductible.
Attorney’s fees paid to help your business or for income-producing matters in general are tax-deductible expenses. Whether the attorney’s fee is tax-deductible ultimately hinges on the nature of the work performed and who the actual client it. For example, fees paid to an attorney to draft a business contract, like a contract for sale of commercial property would likely be tax-deductible only if the fees were paid by a company that was a party to the transaction. However, if the attorney’s fees were paid by an individual who was buying or selling the property then the fees would likely not be tax-deductible, because they would not be a business expense.
Another example of tax-deductible attorney’s fees are those paid in 2015 for a 2016 Business Planning Session. Even fees paid in order to form a business would likely be tax-deductible once the business has legally formed.
See the chart below for a side-by-side comparison of some types of legal matters that may or may not be tax-deductible.
List of Tax Deductible Attorney Fees
|Contracts drafted for a business entity||Contracts drafted for an individual (not including sole proprietorship)|
|Real estate closing performed for a business||Real estate closing performed for an individual|
|Business Planning Session, or incorporation services||Will or Probate|
|Business tax planning and preparation||Individual tax planning and preparation|
|Business immigration for a company||Individual or family immigration matters|
Of course, if you have any questions or concerns that the attorney’s fees you’re paying may not be tax-deductible, you should ask your attorney before he starts any work for you. Upon request our office will prepare separate invoices for clients who have both tax-deductible and non-deductible fees.