Call Now (800) 681-1295

Claiming a deduction for lawsuit against someone

Table of Contents

    The short answer to this question is “it depends.” The tax treatment of legal expenses, like attorney fees, depends upon how those fees were incurred. Fees incurred as “ordinary and necessary business expenses” are fully deductible under Section 162 in the year incurred. For this reason business defendants will rarely have difficulty or face audit challenges for deducting legal fees as business expenses. Although litigation and its attendant expenses are rarely questioned as being ordinary or necessary, care should be taken to establish a sufficient and direct nexus to a trade or business activity to ensure the full deductibility of fees.

    Also, it should be noted that only the payor-taxpayer is entitled to take the deduction. Fees paid for services rendered to another are generally not deductible as a business expense, except in the case where a company pays attorney fees on behalf of an employee or officer for its own benefit. See Concord Instruments v. Commissioner, T.C. Memo 1994-248.

    While legal fees incurred as “ordinary and necessary business expenses” are fully deductible, attorney fees which are entirely personal in nature are not. This is because Section 262 provides that no deduction shall be allowed for personal, living, or family expenses.


    Tax Help Videos

    Representing Clients from U.S. and International Locations Regarding Federal and California Tax Issues

    Main Office

    Orange County
    2601 Main St. Penthouse Suite
    Irvine, CA 92614
    (949) 681-3502

    Our headquarters is located in Irvine, CA. Our beautiful 19,700 office space is staffed full-time and always available for our clients to meet with our highly qualified and experienced staff of Attorneys, Certified Public Accountants and Enrolled Agents. We also offer virtual consultations and can travel to meet with clients in one of our satellite offices.

    Outside of our 4 hour initial consultation option, we do not charge travel time or travel expenses when traveling to one of our Satellite offices, or surrounding business districts, where it is necessary to meet personally with taxing authority personnel, make court appearances, or any in person meeting deemed necessary for the effective representation of a client. To make this as flexible, efficient, and convenient as possible, David W. Klasing is an Instrument Rated Private Pilot and Utilizes the Firms Cirrus SR22 to service client’s in California and in the Southwest by air. Offices outside these areas are serviced via commercial jet airlines. None of these costs are charged to our clients.

    Satellite Offices

    (310) 492-5583
    (760) 338-7035
    (916) 290-6625
    (415) 287-6568
    (909) 991-7557
    (619) 780-2538
    (661) 432-1480
    (818) 935-6098
    (805) 200-4053
    (510) 764-1020
    (408) 643-0573
    (760) 338-7035
    (602) 975-0296
    New Mexico
    (505) 206-5308
    New York
    (332) 224-8515
    (512) 828-6646
    Washington, DC
    (202) 918-9329
    (702) 997-6465
    (786) 999-8406
    (385) 501-5934