Question

Stuart, an insurance salesperson, is arrested for allegedly robbing a convenience store. He hires an attorney who is successful in getting the charges dropped.

Is the attorney's fee deductible by Stuart?

Answer 1

Legal expenses can only be claimed as deduction if they fall under miscellaneous itemised deuctions allowed by IRS. The legal expenses deductible fall under two categories:

1. Unreimbursed employee expenses: Legal fees related to doing or keeping a job for example legal fees for lawsuit between self and employer related to employee’s salary, reimbursement, bonus, etc.

2. Other expenses:

a. Expenses done to produce or collect income that must be included in gross income

b. Expenses to manage, conserve propeorty held for producing gross uncome

c. To determine, contest, pay or claim any refund of any tax

Thus, we can say that legal expenses that one has paid in collecting or attaining taxable income or collection of refund are deductible

Legal fees paid in connection to unlawful employment discrimination claim are adjusted to income

The expenses for following purposes are non-deductible

1. Obtaining custody of child

2. Criminal or civil legal defense

3. Personal injury damages

4. Title disputes

5. Will preparation

6. Alimony or divorce settlements

So the general rule is personal fees are not deductible

As expenses paid for criminal defense are non-deductible, attorney fees for Stuart will not be deductible as robbery is a criminal offense