Legal Fees

[Kegger1]

In 2021 we went to court to collect $45,000 in past due debt and agreed to accept $40,000 as payment in full.  I know the $5,000 is considered a bad debt and can be deducted, but what about the $2,300 we spent on a lawyer and court fees is that part of the bad debt or does that fall under legal fees and is not deductible?

[JohnW152]

No, it’s not considered part of the bad debt.

If this was a suit to collect a personal debt, rather than a business-related debt, your legal fees aren’t deductible.

Please see the TurboTax article Can I Deduct Legal Fees on My Taxes? - TurboTax Tax Tips & Videos for more information.

[Kegger1]

Thanks for the advise and link.  It would have been nice if I could have found the article myself, but it never came up in my many searches on Turbo Taxes website.