Are Your Legal Fees for Divorce Tax Deductible?

 Posted on September 19, 2017 in Divorce

In this day and age, many people are always looking for tax deductions, but most do not think to look to the fees associated with a divorce to find them. Yet it is possible to claim certain divorce-related expenses as tax deductible, and the deductions can add up. Being aware of such possibilities can make a significant difference in your end-of-the-year tax bill.

Alimony

The Internal Revenue Service (IRS) Code clearly states that you may not deduct the cost of “counseling, litigation, or personal advice.” However, if you are a spouse seeking maintenance—also known as alimony—in a divorce there are some fees that you may be able to claim as deductions. If you incur fees such as filing fees while in the process of seeking alimony, you are able to claim many of them as miscellaneous deductions. The important thing to remember is that the claimed deductions related to alimony may not exceed more than two percent of the person’s adjusted gross income (AGI), which for most people is a fairly small number.

Generally, though, the rule of thumb is that fees paid to obtain taxable income are deductible, because you will be paying more in taxes if you are successful. Maintenance is taxable income for the recipient spouse, so the rule applies in most cases.

Fees for Tax Advice

Subject to the same percent of AGI restriction, you may deduct certain fees related to counseling on tax planning and divorce - such as what deductions will change, what exemptions you are entitled to, who gets the tax credit for any marital children, and other related questions. It is imperative, however, if you choose to claim deductions for divorce-related tax planning that your CPA or attorney state very clearly on their bill which portion of their services was for the deductible purpose. If you receive a bill from your attorney that simply says “tax planning,” that is not sufficient evidence for the IRS in the event you are are audited. It must be broken down into deductible and non-deductible expenses. Also, the advice you receive must pertain only to your own problems. If, for example, you consult with a professional for help in avoiding payment of your ex-spouse’s legal fees as ordered in a divorce decree, no part of that advice is deductible.

No other CPA and attorney fees are deductible under the current tax code stands. There may be a silver lining to some other varieties of attorney fees, however; if you own a property that produces income, the attorney’s fees that you pay for maintenance or conservation can be added to the basis (the amount you have invested in an asset) of that property. This can significantly reduce your capital gains tax liability further down the road. Given that Illinois’ combined state and federal capital gains tax amount is 27 percent, that can add up quickly.

Contact a Qualified Divorce Attorney

If you have questions about how your divorce may affect your tax liability, contact an experienced DuPage County divorce attorney for help. Call 630-352-2240 for a confidential consultation at Pesce Law Group, P.C. today.

Sources:

http://www.huffingtonpost.com/julian-block/whats-deductible-for-lega_b_4714616.html

https://www.irs.gov/taxtopics/tc703.html

https://www.realized1031.com/capital-gains-tax-rate