Lawyer fees are not tax-deductible. However, this fact should not discourage hiring an attorney after you have sustained an injury because of someone else’s negligence. Connecting with a Knoxville personal injury lawyer is your best course of action. An experienced attorney from Hotz & Associates will review your case for free and thoroughly answer your question, “Are lawyer fees tax deductible?” and any others you might have.
Can I deduct lawyer fees from taxes for personal injury claims?
Unfortunately, you cannot deduct lawyer fees from your taxes, at least not when you’ve hired an attorney to represent you in a personal injury case. In past years, tax on lawyer fees was deductible if those fees were related to personal injury cases. The tax could qualify as miscellaneous itemized deductions on a private individual’s tax return, up to a certain percentage. However, this deduction is no longer an option under the Tax Cuts and Jobs Act (TCJA) of 2017 to 2026.
The Internal Revenue Service (IRS) recently produced Publication 529, which includes “personal legal expenses” on its “List of non-deductible expenses,” making this new no-deduction policy very clear.
Are lawyer fees tax deductible in other situations?
There are situations when you may deduct lawyer fees from your taxes, such as when you have hired a lawyer for business purposes. The TCJA business deductions and restrictions could apply to that situation.
However, the TCJA has suspended the law that makes lawyer fees tax deductible when the lawsuits are personal. If you file a personal injury case, you are filing on your behalf, not that of your business, so business deductions do not apply.
Will my settlement be taxed?
Tennessee does not have a state income tax, so the state will not take taxes out of your settlement. However, the federal government may tax some parts of your settlement. A settlement can include compensation for physical and emotional damages and an additional award for punitive damages. Punitive damages mean money the defendant must pay as punishment for their negligence on top of the funds compensating you for your losses.
The IRS uses those categories to determine which portions of your settlement are taxable. For example, physical damages, medical costs, and emotional damage that directly result from your physical injury are all untaxed. However, what you receive from punitive damages and missed wages are taxed.
Tax implications are complicated when paying legal fees and collecting a settlement. Although we cannot provide tax advice, we can help you find a tax attorney best suited to your needs. You will need to seek the advice of a tax attorney. When you partner with Hotz & Associates for your personal injury case, you will get the guidance you need to sort through these issues.
We are your “one-stop shop” for personal injury matters.
Can you deduct lawyer fees on taxes? Under the TCJA, the answer is no, but that should not stop you from securing legal representation and pursuing compensation through a personal injury case. When you partner with Hotz & Associates, you can trust your Knoxville personal injury lawyer to explain how our contingency payment works and how to handle those payments in light of TCJA reforms.
Our experienced, knowledgeable team is here to fight for your rights and guide you through all related legalities. Message us through our online form or call (865) 582-0042 to schedule your free consultation today.