If you’ve received a letter from the IRS questioning some of your deductions, the experienced tax attorneys at Wiggam Law can review your situation, help you respond, and represent you in discussions with the IRS.
Tax laws are continuously changing and can be confusing, particularly with all the special provisions and one-time exceptions related to the pandemic. If you are an independent contractor, run a small business and use Schedule C for your taxes, or are an individual who itemizes, you might be wondering what you can deduct that won’t draw attention from the IRS.
Can I Deduct Legal Fees?
Taxpayers can deduct tax preparation fees, so what about legal fees? The answer is it depends. Most personal legal expenses, such as drafting a will or getting a divorce, are not deductible. Alternatively, many small business legal expenses are allowed as a deduction against business income.
The IRS generally allows businesses to deduct ordinary and necessary attorney fees that are directly related to the operation of a business. These might include fees for drafting contracts, protecting intellectual property, going to court, or dealing with employment issues.
Legal expenses related to the acquisition of business assets, however, generally are not deductible. These costs are added to the basis value of property.
It’s important to keep personal and business legal expenses separate. If the same attorney handles both your personal and business matters, make sure any invoices that include work for both clearly delineate personal legal fees from matters related to your business operations.
What Can I Deduct as a Business Owner?
In addition to legal fees, most other costs related to operating your trade or business are deductible so long as you are running a business that seeks to be profitable. The IRS watches for individuals attempting to pass a hobby off as a business operation and profitability plays into its evaluation.
Common allowable business deductions include, but are not limited to:
- Costs of goods sold
- Advertising
- Employees pay
- Many expenses related to starting your business
- Interest on a business loan
- Business use of your home
- Rent
- Certain real estate taxes
- Employer’s portion of employment taxes
- Insurance
- Many small-dollar properties such as office furniture, computer equipment, and specialized business assets (not real estate)
- Business bad debts
Jason Wiggam
Founding Partner
Jason is a founding partner of Wiggam Law in Atlanta, Georgia. His practice focuses on representing individuals, businesses, officers, directors, shareholders, and partners in matters concerning the Internal Revenue Service (IRS), the Georgia Department of Revenue, and other state tax departments. He has successfully represented clients in the IRS’s recent crackdowns on syndicated conservation easements and micro-captive insurance disputes. Jason also has significant experience handling IRS tax settlements, tax compliance, appeals representation, offshore foreign bank reporting compliance, audit representation from responding to IRS audit letters through to IRS audit reconsiderations if necessary, innocent spouse relief, IRS levy and IRS garnishment releases, penalty waivers/abatements, and lien releases/withdrawal.
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