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Can I deduct attorney fees or any legal fees?

You can if you include in your gross income both:

  • The total amount of your settlement award
  • Any contingent fees you paid to an attorney out of the award
    Then, you can deduct the fees you paid to the attorney as a miscellaneous itemized deduction. The deduction will be subject to the 2% of adjusted gross income (AGI) limitation. Report your deduction on Schedule A.

For settlements involving certain types of discrimination, you can deduct the attorney's fees. This applies even if you don't itemize. If your claim relates to discrimination, you should consult a tax professional.

Also, you can usually deduct legal fees you:

  • Incurred in attempts to produce or collect taxable income
  • Paid in connection with the determination, collection, or refund of a tax

You can also deduct legal fees that are:

  • Related to either doing or keeping a job (Ex: fees paid to defend against criminal charges arising out of a trade or business)
  • For tax advice related to a divorce if the attorney's bill:
    • Specifies how much is for tax advice
    • Is determined in a reasonable way
    • Paid to collect taxable alimony

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