Are Legal Fees Tax Deductible?

The answer is—it depends! Generally, it depends on the nature of the expense. Legal expenses incurred for business purposes are generally deductible as ‘ordinary and necessary’ expenses of the business entity. Most legal fees paid for personal reasons are not deductible, but some exceptions exist.


Some relatively common situations exist where non-business legal fees may be deductible. These situations relate to doing or keeping a job, collecting taxable income, or getting tax advice. As always, details matter. The rules that apply and how to report can get pretty complicated.


Legal Expenses that May be Deducted are generally related to business, employment/income, and income taxes, such as:

  1. Legal expenses incurred in attempting to produce or collect taxable income, or paid in connection with the determination, collection, or refund of any tax.
  2. Related to either doing or keeping a job, such as legal fees paid related to a claim of unlawful discrimination.
  3. Tax advice related to a divorce if the fees are billed specifically for tax advice, determined in a reasonable way.
  4. To collect taxable alimony.
  5. To resolve individual tax issues relating to profit or loss from business, rentals or royalties, or farm income.


Legal Expenses that May Not be Deducted are generally related to personal legal needs, such as:

  1. Preparation of a will.
  2. Property claims or property settlement in a divorce.
  3. Custody of children.
  4. Civil or criminal charges resulting from a personal relationship.
  5. Damages for personal injury, other than for certain whistleblower and unlawful discrimination claims.


This list of situations highlights the importance of understanding the rules about which legal fees are tax deductible and which are not.  While the details of what’s going on aren’t under your control, you can control obtaining the documentation needed for those tax deductible legal fees.


Want to know more? This topic is so complicated, it’s addressed in four separate IRS publications: Tax Guide for Small Business, Publication 334,; Miscellaneous Deductions, Publication 529,; Business Expenses, Publication 535,; and Basis of Assets, Publication 551,