• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Facebook
  • Instagram
  • LinkedIn
  • Twitter
  • YouTube
Big Ideas for Small Business logo

Barbara Weltman

Big Ideas for Small Business, Inc.

Whitepaper download

Subscribe and download our eBook, "150+ Tax Deductions for Small Business A to Z."

This field is hidden when viewing the form
Get the:

  • Home
  • About Us
  • Big Ideas For Your Business
    • Idea Of The Day ®
    • SMB Legal
    • SMB Taxes
    • SMB Financial
    • Small Business
    • Newsletter Archive
  • Services
  • Books
  • Blog
  • Multimedia
    • Videos
    • Radio Shows/Podcasts
  • Be a Guest Blogger

Which Legal Fees Are Deductible?

February 21, 2017 / By Barbara Weltman

Which Legal Fees Are Deductible?“Lawyers are seldom loved but often needed,” according to Robert B. McCay, who was a former dean at NYU Law School.  In the course of your business you’re likely to incur legal expenses, some of which may be modest, but some may be substantial. If you thought that all legal fees paid by your business or by you in connection with your business are deductible, you’d be wrong.

Startup costs

During the course of starting a business, you may incur legal fees for incorporating or forming a limited liability company, drawing up contracts with suppliers, obtaining a lease from a landlord, and addressing other legal matters. Instead of merely capitalizing the costs, you can elect to deduct up to $5,000 of startup costs as a deduction in the first year of the business. Cost over $5,000 can be deducted ratably over 180 months. However, where startup costs exceed $50,000, the upfront deduction may be reduced or eliminated.

Advice related to operations

Legal fees that constitute ordinary and necessary business expenses or are related to determining, collecting, or obtaining a tax refund are deductible. There’s no dollar limit capping the deduction. Examples of currently deductible legal fees:

  • Advising on the legality of various actions (e.g., termination of an employee)
  • Collection activities for money owed by customers
  • Defamation actions against the business’s reputation
  • Defending intellectual property claims (e.g., a trademark challenge)
  • Defending the business against discrimination and other employment-related claims by workers or former workers
  • Drawing up contracts and agreements
  • Legal services related to the sale of property
  • Tax advice

Important: The business may need to send the attorney Form 1099-MISC if fees are $600 or more. This is so even though the “lawyer” is a law firm that is a corporation or professional limited liability company (PLLC).

Acquiring assets

Legal fees paid to acquire business assets are not currently deductible. Instead, they are added to the basis of the property acquired. For example, if the business buys a building, the legal fees for the acquisition become part of the cost basis on which depreciation is figured.

Personal matters involving the business

Legal fees for most personal matters are not deductible business expenses:

  • Divorce. When a business owner divorces, ownership of the business may become a matter of contention, resulting in legal fees to settle the question of ownership. Usually legal fees in a divorce matter are nondeductible personal expenses. The U.S. Supreme Court has made it clear that this is so even though business assets are at stake and the owner could lose income. However, if the bill itemizes the portion of the work related to tax advice, then that portion is currently deductible (the attorney’s allocation will be respected under Rev. Rul. 72-245). As a practical matter, however, the deduction can be taken only as a miscellaneous itemized deduction on the owner’s personal return. As such, only amounts in excess of 2% of adjusted gross income (AGI) actually produce a tax benefit, and many business owners’ AGIs are too high to reap any benefit from such a write-off.
  • Estate planning. Drawing a will is viewed as a personal matter so that legal fees are not deductible. However, as in the case of a divorce, fees for tax advice which are part of estate planning can be deductible if the attorney’s bill is itemized to specify this portion.

Conclusion

If you have questions about the legal fees your firm or you have paid, talk to your CPA or other tax adviser.

Tags business expenses deductible legal fees incorporating legal fees startup costs

Primary Sidebar

Categories

  • General Business (506)
  • Guest Blog (115)
  • Homepage (28)
  • Small Business (1,008)
  • SMB Financial (330)
  • SMB Legal (67)
  • SMB Taxes (327)

Barbara’s Recent Posts

  • How to Choose the Right Promotional Product Distributor July 11, 2025
  • Is Christmas in July for Your Small Business? July 10, 2025
  • How to Streamline Recruitment and Selection to Enhance Hiring Results July 9, 2025
  • One Big Beautiful Bill: Checklist of Tax Changes for Small Businesses July 8, 2025
  • What the U.S. Supreme Court Told Small Businesses in This Term: Part 1 July 3, 2025
  • Mid-Year Business Planning for 2025 July 1, 2025
  • 10 Ideas for Coping with Cash Flow Challenges June 26, 2025
  • 5 Insurance Traps to Avoid June 24, 2025
  • Creating a Feng Shui Office Layout for Your Business June 20, 2025
  • Scaling Your Business by Optimizing Social Media Marketing June 19, 2025
  • The Timeless Value of Business Cards in a Digital World June 18, 2025
  • What Does the Latest IRS Data Book Tell Us? June 17, 2025
Awarded Top 100 Small Business Blog medal (link will open in a new window or tab)
Marquis Who's Who 2023 Badge
Top Small Business Blogs (Link will open in a new window or tab.)
Fiverr Pro
8 Financial blogs small business Owners Need to Read. Invoice home.  (link will open in a new window or tab)
Best Small Business Blog, Expertido.org
Top 50 Small Business Blogs 2018
Best Small Business Blogs
BizHumm Top 100 Business Blog Award to Barbara Weltman
FitsSmallBusiness.com: Award for Best Small Business Blog 2017 (link will open in a new window or tab)
FitsSmallBusiness.com: Award for Best Small Business Blog 2016 (link will open in a new window or tab)

Footer

Big Ideas for Small Business logo

Small business ideas, business tax news and small business consulting from Barbara Weltman to provide business owners with the information they need to succeed. Visit our small business blog, Idea of The Day®, small business books and articles on small business taxes, small business finance and small business legal advice.

Contact Us

[email protected]

(772) 492-9593

gacor maxwin situs slot thailand terpercaya situs slot gacor situs gacor akun pro thailand slot bandar togel terpercaya

Latest Tweets

bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
July 13

Be Your Own Advocate: A Short Guide to Self-Promotion - HR Daily Advisor https://bit.ly/3InHe4n #workplace

Reply on Twitter 1944517258010644487 Retweet on Twitter 1944517258010644487 Like on Twitter 1944517258010644487 Twitter 1944517258010644487
bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
July 13

eBay Applauds Restoration of 1099K Reporting Threshold https://bit.ly/4nHBgvH #smallbusiness #taxes #taxrules

Reply on Twitter 1944509657164222705 Retweet on Twitter 1944509657164222705 Like on Twitter 1944509657164222705 1 Twitter 1944509657164222705
bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
July 13

eBay Applauds Restoration of 1099K Reporting Threshold via @Ecommercebytes

Reply on Twitter 1944491709473403239 Retweet on Twitter 1944491709473403239 Like on Twitter 1944491709473403239 1 Twitter 1944491709473403239
Load More

Copyright © 2008–2025 Big Ideas for Small Business, Inc  |  Designed by Hudson Fusion

  • Privacy Policy
  • Sitemap