Legal fees are deducted in the Deductions & Credits section:
- Federal Taxes
- Deductions and Credits
- Scroll down to Other Deductions and Credits
- Select Legal Fees
Note: Legal fees are part of your itemized deductions, if your are not claiming mortgage interest, real estate taxes, charitable donations etc., the fees deductions will not affect your tax return.
Legal Fees you can deduct:
- Court costs and attorney fees related to either doing or keeping your job, including back pay, injury to reputation, and unlawful discrimination claims
- Costs of collecting taxable alimony or arranging details of alimony payments
- Fees for tax advice related to a divorce, if the bill specifies how much is for tax advice. You cannot deduct any other legal fees related to a divorce or child support since they are personal expenses not related to taxable income.
- Fees for personal injury actions where you recover taxable damages
- Estate tax planning fees related to tax planning or income-producing property
- Costs of collecting taxable Social Security benefits
- Fees to recover income-producing property such as stocks or bonds loaned as collateral
Legal fees you cannot deduct:
- Expenses for personal lawsuits unless you recover taxable damages
- Legal fees for personal injury awards that are tax-free
- Legal costs related to the acquisition or determination of title to property. However, you may add these costs to the basis of the property, which becomes important when you sell the property, or if you depreciate it.
- The costs of contesting a will. This is because an inheritance is not taxable income.
- Legal fees for divorce or child support actions, other than those stated above as eligible.
This was helpful in my case. I recently had to file a return for 2017 because my only income for that year was from a wrongful termination lawsuit but I thought it wasn't taxable income at that time so I didn't file (long story). I got a 1099MISC for the full amount of the settlement, but I only actually got less than half the amount because of legal fees. What forms do I need to file an amended return for 2017 that includes the deduction for my legal fees? Also, would I be able to deduct the legal fees on my state taxes for California? Thanks!