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Posted by D. Stussy on May 11, 2008, 5:54 am
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> >>
> >> > No. Legal fees for non-taxable income are not deductble.
> >>
> >> Is there a distinction between non-taxable income and income that
> >> was previously taxed but is merely being recovered?
> >
> > I don't follow. If it were previously taxed, then how can it be
> > be subject to recovery?
> >
> > Now, if you are saying it was previously taxed due to accrual
> > accounting but never received, then fees to collect it are
> > deductible.
>
> Neither. You have money in your bank account that you received in past
> years and have paid tax on it. Someone (in a consumer transaction)
> sells you something that turns out to be worthless, so you pay for it
> with money in that same bank account. When you sue for it later you
> receive a judgment for your money, but after paying your lawyer you
> only get two-thirds back.
>
> There is no tax on recovery of the money, but after paying attorneys
> fees you are still in the hole. Can you deduct those fees in that
> case?
If there's no tax on the recovery, then the expense is not deductible.
Why would there be no tax on the recovery? Supposedly, one claimed a theft
loss deduction - and that makes the recovery taxable.
There is no blanket deduction for legal fees. They must be business related
or for the production of income. Any other legal fee, including but not
limited to personal ones (e.g. divorce) is not deductible.
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