Can I deduct attorney fees?

[jmartin1108]

My wife started an in home daycare business. She was falsely accused of abuse and had to hire an attorney that cost over $6k. Is that deductible?

[Anonymous_]

See https://turbotax.intuit.com/tax-tips/tax-deductions-and-credits/can-i-deduct-legal-fees-on-my-taxes/...

[jmartin1108]

I've read that but I'm still not sure if that's a yes or no.  None of that states exactly what we're dealing with. Would you say yes we can write those fees off or no we can't?

[Anonymous_ · Accepted solution]

Read the information at the link below (IRS publication).

https://www.irs.gov/publications/p535#en_US_2021_publink1000209199

See also Section 162(q)

https://www.law.cornell.edu/uscode/text/26/162

[Carl]

Generally, legal fees incurred related to your business are deductible as a business expense. I can't see any reason why the fees you incurred would not be deductible as such. I am of course, assuming your wife's daycare meets all federal, state and local laws and requirements to operate.

[Anonymous_]

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@Carl wrote:

I can't see any reason why the fees you incurred would not be deductible as such. 

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Because you have not read the Code. There is an exception which may very well not apply here (and probably does not) but it is an exception to deductibility.

[Mike9241]

@jmartin1108  posssibly a clearer explanation of IRC 162(q)

The law denies tax deductions for legal fees and settlement payments in sexual harassment or abuse cases, if there is a nondisclosure agreement. Virtually all settlement agreements include confidentiality or nondisclosure provisions.

so maybe you have to clarify what the case was about and what took place.   as a side question why didn't the business insurance or personal liability insurance, if you had them, cover the legal fees? if you had insurance that would reimburse you for the fees but declined to file a claim, regardless of the above, the tax laws deny a deduction.

note that this does not imply we can give you more guidance. we are not lawyers. perhaps ask your lawyer for an opinion.    

[Anonymous_]

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@Mike9241 wrote:

so maybe you have to clarify what the case was about and what took place...

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Correct; we do not know all of the facts involved in the case nor the nature of its disposition. For all we know, it could have cost $6,000 to get the case dismissed.

[note: the fact that we do not render legal guidance or opinions, does not mean some of us are not lawyers]

[jtax]

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[note: the fact that we do not render legal guidance or opinions, does not mean some of us are not lawyers]

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That is true. But I would also caution that saying one is not rendering legal or tax advice is not dispositive of whether one is in fact giving such advice. The general rule I recall is  whether an objective person seeks and receives advice that applies law (e.g. the I.R.C. or Treasury Regs) to particular facts such that a reasonable person would rely on the advice.

There is a very good argument that every time someone one this site says you can deduct that or include or exclude that income, etc. that is legal advice because it is applying the tax law to a particular case. And that the OP is of course going to rely on that. That's why they posted. On the other hand saying here is a publication or the rules and having the OP make the determination doesn't seem to fit that bill.

[Anonymous_]

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@jtax wrote:

But I would also caution that saying one is not rendering legal or tax advice is not dispositive of whether one is in fact giving such advice.......

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I agree, which is the reason those little disclaimers at the bottom of many posts are essentially worthless.