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Stockmoose16
Returning Member

At what point in billing process can I deduct legal fees?

I started a lawsuit in 2017 for unpaid wages and defamation. Part of the reason I pursued it is because wage claims were a tax deduction. I racked up huge legal bills in 2017, but my settlement didn't come until 2018. Because of that, I didn't pay the bill until 2018. Given the new law that seems to disallow writing off wage claims, I'm wondering if - since the legal work I was charged for was incurred in 2017 - I can still write it off even though I didn't pay the bill until 2018? Not sure if this would involve revising my 2017 return or if I can just make a notation on my 2018 return. 

I imagine there must be a way to take the deduction, as there are likely people with millions in legal fees accumulated over many years before the latest tax act was enacted. All of those people would be stuck with a huge legal bill when the law at the time allowed wage claim deductions.

Can anyone help? 

7 Replies
Carl
Level 15

At what point in billing process can I deduct legal fees?

IRS Publication 529 at https://www.irs.gov/pub/irs-pdf/p529.pdf on page 5 states:

You can deduct legal fees related to doing or keeping your job.

So I'm unclear myself if this is actually deductible. You didn't sue to keep your job, or to do your job. The job was already done, and you sued to get paid for doing it. You should talk with a tax attorney (not a CPA) in your state on this. I myself say you should be able to deduct it. But by my reading of pub 529, the "letter of the law" says you can't. I hope you can.

Stockmoose16
Returning Member

At what point in billing process can I deduct legal fees?

Well, I didn't finish the job. I was fired before the end of my contract and had to sue to get the rest of my money.

But my question was not whether I could write it off, it was if I could write it off in TY17 since that's when the fees were incurred. They were, however, paid in 2018.
Anonymous
Not applicable

At what point in billing process can I deduct legal fees?

Carl, this is a 2017 publication not the 2018 version.
TaxGuyBill
Level 9

At what point in billing process can I deduct legal fees?

It would be on your 2018 tax return.

However, that deduction might not be gone.  There is still a valid "above the line" deduction for expenses for "discrimination" lawsuits.  MANY employer lawsuits qualify for that.  It may be a good idea to sit down with a good tax professional (or possibly your attorney) that can look at the exact facts-and-circumstances of your lawsuit, to determine if it qualifies under this "discrimination" provision.

Stockmoose16
Returning Member

At what point in billing process can I deduct legal fees?

Can you give examples of what would fall under "discrimination"?
Anonymous
Not applicable

At what point in billing process can I deduct legal fees?

we are not lawyers and I think this is a legal question not a tax question.  as to deductibility if at all 2018 when paid   
Carl
Level 15

At what point in billing process can I deduct legal fees?

Basically, your legal fees are deductible in the tax year they are paid, but that's only if they are deductible at all. A vast majority of the time, legal fees are not deductible. Since I'm now aware I was dealing with a 2017 publication, I can't provide a definitive answer to this.
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