A divorce can be a painful experience even if both the spouses prefer a separation for their own good (to reign in the feelings of mind is the toughest thing to achieve on earth). But IRS looks the other way when it comes to deducting divorce legal fees from taxable income. Their rules simply disallow any claim for tax deduction for the legal fees incurred in the run up to obtaining a formal divorce, separation or decree of support. But this is a general peep into the behavior of IRS rules pertaining to the tax deduction associated with divorce cases. There are certain aspects where tax deduction is permitted such as the fees for alimony. Let us have a closer look at the rundown of related rules and regulations.
The million dollar question here is ‘Are divorce legal fees deductible?’ The straight forward answer to this poser is ‘No’. Because IRS doesn’t see a reason to accommodate the legal fees incurred in obtaining a divorce among tax deductibles. No tax deduction is permitted for the cost incurred in receiving personal advice, counseling and following legal actions. For example, the spouse – husband – will not get any tax reprieve for the cost incurred in legal litigations fighting his wife’s demands for more alimony or to settle an antenuptial property agreement. The laws are stringent even if the expenses are partly incurred in reaching some sort of a financial settlement or to resist a claim relating to an income-producing property.
It is widely seen people taking such issue to tax court anticipating a ruling in favor of them in the legal fees deduction in divorce related issues. But in nine out of ten times, the tax court had thrown out such litigations and declined to bend the tax rules to accommodate deduction of divorce fees in income tax deductions.
But there is a silver lining in the fees deduction topic for divorcing wives. That is, a part of the legal fees they spend while fighting for alimony rights can be included under ‘miscellaneous tax deductions’ on Schedule A of form 1040. This concession is borne out of the fact that alimony itself – above a stipulated limit – is taxable. But such deductions are permitted to certain conditions that the alimony in any one year exceeds 2 percent of her AGI, short for adjusted gross income.
Also if the attorney’s services include counseling on taxes, make sure that client insist the attorney to prepare a bill, with the non-taxable and taxable charges separated and entered in separate sections. Such a classification will come handy in the event of an audit, in substantiating the client’s stand, assuming that he/she has overcome the 2% hurdle.
Legal aspects can be confusing and mind numbing, if to read and understand it fully. But when it matters, there is no other choice left than understanding clearly one’s rights and dos and don’ts. In fact, knowing the intricacies of the concerned aspect could solve more than half of the issues at the early stage itself. Hence, keep yourself updated and informed. Now one needs to worry about the lesser part of the other half only.