Are Your Attorney Fees Tax Deductible?

Determining whether you can deduct attorney fees from your taxes is a complex issue. The ability to claim these costs depends on the nature of the legal services provided. The rules distinguish between personal and business-related legal matters, with further exceptions for specific situations.

The General Rule for Personal Legal Fees

For most individuals, legal fees paid for personal reasons are not tax-deductible. This is a direct result of the Tax Cuts and Jobs Act (TCJA), which suspended most miscellaneous itemized deductions from 2018 through 2025. These deductions are scheduled to be restored in 2026, but under current law, most personal legal expenses do not qualify.

This change means that many common types of personal legal expenses cannot be used to reduce your taxable income. For instance, fees paid to an attorney for divorce or child custody proceedings are considered personal expenses and are not deductible. Similarly, if you hire a lawyer to defend you in a personal injury lawsuit that is not related to your business, those costs cannot be claimed.

Legal costs associated with estate planning, such as drafting a will or setting up a personal trust, also fall into this non-deductible category. If you receive a settlement or award for physical injuries or sickness, the money is generally not considered taxable income. Because the award itself is not taxed, the associated legal fees paid to secure that award are also not deductible.

Deductible Business-Related Attorney Fees

In contrast to personal legal costs, attorney fees related to operating a trade or business are generally tax-deductible. The guiding principle from the IRS is that these expenses must be both “ordinary and necessary” for carrying on the business. An ordinary expense is one that is common and accepted in your specific industry, while a necessary expense is one that is helpful and appropriate for your business.

This allows for a wide range of legal costs to be written off. For example, fees paid to an attorney for drafting contracts with clients or suppliers, negotiating leases for commercial space, or providing legal advice on business compliance issues are all deductible. If your business faces a lawsuit related to its operations, the costs of legal defense are also considered a valid business expense.

Specific Exceptions for Individual Taxpayers

While the general rule prohibits deducting personal legal fees, there are specific exceptions for individuals. These exceptions allow certain legal fees to be deducted as an “above-the-line” deduction, which means you do not need to itemize your deductions to benefit. This type of deduction directly reduces your adjusted gross income (AGI).

The most significant exceptions relate to legal fees paid for lawsuits concerning unlawful discrimination and certain whistleblower claims. For unlawful discrimination cases, you can deduct attorney fees and court costs related to claims under a number of federal statutes. These include actions involving the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, and the Age Discrimination in Employment Act of 1967, among others. This deduction is limited to the total amount of the judgment or settlement that you include in your gross income for the year.

Similarly, legal fees connected to whistleblower actions may also be deductible. This applies to actions where you provide information to the IRS that helps it detect violations of tax law, as well as certain actions involving the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission. The fees paid to your attorney in these specific cases can be deducted above the line, reducing your taxable income directly.

How to Claim Deductible Attorney Fees

The method for claiming deductible attorney fees depends on whether the expense is for a business or falls under one of the specific exceptions for individuals. For business-related legal fees, sole proprietors list the total amount of legal and professional service fees on line 17 of Schedule C (Form 1040). Those with rental real estate income report these expenses on line 10 of Schedule E, and farmers use line 21a of Schedule F to report their legal and professional fees.

For the specific exceptions available to individuals, the deduction is claimed on Schedule 1 (Form 1040), Additional Income and Adjustments to Income. You will report the deductible amount on line 24h. On the dotted line next to the amount, you must enter a specific code. For fees related to unlawful discrimination claims, write “UDC”, and for qualifying whistleblower fees, write “WBF”.