Are Attorney Fees Tax Deductible, asbestosdefinition.com | If you are in a situation where your lawyer wants to file a bankruptcy petition, and he has filed for an appointment with the court, you may be aware that you cannot eliminate attorney fees from your bankruptcy. Instead, the attorney fees should be paid by the bank or lender, who you owe money to.
But there is one exception to this rule and that is if you wish to eliminate all or part of your professional fees. This is known as “professional fees”. Of course, if your lawyer files a petition for bankruptcy on your behalf, you do not have to pay his or her fees, because you have nothing to do with the case.
However, even if you do pay the attorney fees of a lawyer who files a petition on your behalf, you still can’t deduct all of them as a business expense on your return. Only the portion of the fees that exceeds ten percent of your adjusted gross income can be deducted. However, the deduction can be up to 50 percent, depending on the state you live in.
Is Attorney Fees Tax Deductible? One of the reasons why lawyers file for bankruptcy on their clients’ behalf is because they receive some form of compensation when filing. The attorney fee must be written up as a deduction in the client’s return, and then, it must be reported on Schedule A.
Another reason why many lawyers file for bankruptcy on their clients’ behalf is because they want to avoid paying professional fees. Your lawyer may be scared to take you to court because it will cost him a lot of money. In fact, he probably doesn’t want to take you to court because he can expect a lot of losses for the case.
If you filed bankruptcy on your client’s behalf, you would be better off to give up any rights to fees. They can’t be deducted because your client is not having a chance to defend against the creditors. Plus, they can’t be deducted because they are professional fees and are not professional services.
Still, if your client has suffered a medical malpractice, or has been the victim of an auto accident, or has suffered from negligence or gross negligence by a person who was working for the company or a contractor that you work for, your client can certainly get you some financial compensation. This will be an example of a professional service performed and should be reported on Schedule A.
These professional fees will also be deductible on your return as a tax deduction. Even if the claim for damages or injuries were denied by the court, it does not make the professional fees any less deductible.
Why don’t lawyers pay their professional fees out of their own pocket? Lawyers are not taxpayers, and they know that many tax laws can’t be enforced if a client files for bankruptcy on their behalf. Also, bankruptcy proceedings will often delay the case until the judge considers the case.
Many lawyers agree that it is better to go to court than to lose the case, and pay bankruptcy fees to try to keep their firm intact. Lawyers also realize that they will receive a percentage of the settlement and probably get a percentage of the profits that the firm receives, so they can more than justify paying some professional fees to get out of court with their client.
There are some situations in which you cannot deduct professional fees, such as if you hire a personal injury attorney only after a court has issued a writ of garnishment. Also, many attorneys will agree that they only give legal advice and not perform other acts for their clients.
There are times when professional fees are deducted, but not always. This should be discussed with your attorney.