J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Legal and Professional Fees

Legal and professional fees related to your business are deductible. Professional fees may include, for example, not only legal fees but also accounting fees, actuarial fees, systems analyst fees, and appraisal fees.

Legal Fees

Legal fees for business matters generally are deductible as an ordinary and necessary business expense. Examples of deductible legal fees include fees incurred for:

• Assistance in collecting outstanding accounts payable
• Defending against a claim of infringement of intellectual property
• Defending against charges of mismanagement of a retirement plan
• Defending against shareholder allegations of misconduct
• Defending against wrongful discharge actions
• Obtaining an IRS ruling
• Tax advice

Not all legal fees are currently deductible. Examples of nondeductible legal fees include fees incurred for:

• Acquiring a capital asset. The fees are added to the basis of the asset. For example, if you pay attorney’s fees to handle the closing when you buy your office building, the fees become part of the basis of the office building and are recovered through depreciation.
• Actions that are personal in nature, such as legal fees to pursue a personal injury action, even if the injury occurred during a business trip; to prepare a will even if it includes a business; and to settle a divorce even if it relates to reserving your interest in a business. The portion of fees that can be allocated to tax advice, however, is deductible.
• Incorporating a business ...