Clients periodically ask whether legal fees are tax deductible on their personal income tax returns. As with any tax question, the general rule is that “Uncle Sam nearly always wins.” Different areas of law may have different results, for example, legal expenses for the formation of a business may have different tax status than the legal expenses associated with a personal injury case.
Generally, legal fees associated with drafting a will cannot be deducted. When estate planning is primarily for tax advice and planning on income producing property, the answer may change. See Wong v. Commissioner, Tax Court Memo 1989-683. The burden is on the taxpayer to show what portion of the legal expenses was for tax advice on income producing property. If deductions will be sought, it is vital that the attorney create detailed time and expense records to support the deduction. However, for a typical estate plan, as well as most other personal the legal matters, legal fees are not deductible. See IRS Publication 529 at 16.
Although you may not be able to deduct estate planning expenses from your personal income taxes, the expense of creating even a basic will can result in savings to your estate. Please contact us to learn more.