Legal Question in Tax Law in California

deductibility of legal fees

Hi

I have incurred and paid legal fees stemming from a breach of contract lawsuit for income received in the year 2005. However, the lawsuit was not filed until 2006, and I am currently paying the legal fees in 2007. Because the lawsuit stemmed from business income in 2005, is the money i have paid in 2007 for legal/atty fees tax deductible, if so, is it deductible for 2005,2006, or 2007. I earned income from this consulting business in 2006 and 2005, but have not earned any in 2007. Your help is appreciated.


Asked on 10/08/07, 1:49 am

1 Answer from Attorneys
Donald Field Donald L. Field, Jr., Attorney at Law

Re: deductibility of legal fees

legal fees related to production of income are deductible. if you are a cash basis taxpayer the deduction must be taken in the tax year paid. consult your tax return preparer as to whether you should report the expense on schedule c or as a miscellanous deduction on schedule a.

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Answered on 10/12/07, 2:32 pm


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