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Professional And Legal Services As A Self-Employment Deduction

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Professional And Legal Services As A Self-Employment Deduction

Say you've hired a lawyer to help you with a legal matter, or brought in an accountant to make sense of your financial records and prepare your taxes. These types of services are often essential to self-employed individuals or small businesses. They can also minimize your tax liability because you can deduct these expenses as write offs. But you can't just hire anyone for anything and expect a deduction. For example, you can't write off the fees you paid your criminal defense lawyer when you were caught throwing paint on your neighbor's car, tax deductible legal fees have to be business-related. Professional and legal services as an IRS deduction category are like a little tax break for seeking the help you need. They make sure you don't get penalized for doing the responsible thing – getting professional advice when it matters. In this guide, we’ll dig deeper into how to write off these expenses and answer questions like are attorney fees tax deductible and are tax preparation fees deductible.

Table of contents

Key takeaways...Read more

Are legal fees tax deductible?...Read more

Are attorney fees tax deductible?...Read more

Are lawyer fees tax deductible?...Read more

Are tax preparation fees tax deductible?...Read more

Are tax prep fees deductible in California?...Read more

Line 10 vs Line 17 of Schedule C...Read more

Nondeductible legal and professional services...Read more

Claiming legal and professional service fees as a 1099 deduction...Read more

Key takeaways

  • Legal fees are only tax deductible if it is an ordinary and necessary business expense.
  • The tax preparation fees deduction can only be claimed if the service was availed for business reasons.
  • Legal and professional services should be reported on Schedule C.

Are attorney fees tax deductible?

Say you’re a freelance software developer who runs your own small business. You’ve been working on a project for a client when a disagreement arose over the project's scope and payment terms. Despite multiple attempts to negotiate a resolution, you both couldn't come to an agreement. You decide to hire an attorney to help navigate the dispute. The attorney's services included drafting legal documents related to the dispute and representing your interests in negotiations with the client. In this case, these attorney fees are tax deductible as they are directly associated with your business. So you can report the tax deductible legal fees on your Schedule C as a deductible business expense. Maybe you’re also wondering, “Can you deduct attorney fees from a settlement?” Generally, attorney fees related to settlements are not tax deductible. You may be able to claim attorney fees in the form of an income adjustment if you itemize your deductions.

Are lawyer fees tax deductible?

Most people use the terms “lawyers” and “attorneys” interchangeably, but there is a difference between the two. Lawyers usually act as consultants or advisors while attorneys represent people at court. Both these expenses count as legal fees and can be tax deductible if hired for your business. Let’s say you’re a self-employed marketing consultant. When your business started to grow, you wanted to get some legal expertise. You hire a legal consultant to review and draft contracts, provide guidance on compliance issues and advise you on intellectual property law. As this service is essential to your business growth and an ordinary and necessary expense, you can claim these tax deductible legal fees as a business write off. In this case, your lawyer fees are tax deductible and help you reduce your net income and your estimated tax payments.
Infographic entitled Legal Costs That Are Business Deductions listing expenses that are tax deductible apart from attorney’s fees.
In some cases, you may need to capitalize legal fees if they are part of your business startup costs. Business startup costs need to be amortized over 15 years. However, you can deduct up to $5,000 in startup costs in the first year you are in business. Classifying these expenses can be confusing but FlyFin can help. A.I. finds and categorizes your business deductions, and CPAs provide unlimited tax preparation and filing support on the app.

Are tax preparation fees tax deductible?

Starting from 2018 and continuing through to 2025, the Tax Cuts and Jobs Act (TCJA), changed the rules for tax preparation fees. If you’re a W-2 employee, you can no longer deduct these expenses. However, self-employed individuals can still write off their tax preparation fees as a business expense. Before 2018, taxpayers who weren't self-employed could potentially claim tax prep fees as a 2% miscellaneous deduction. Self-employed individuals can actually take advantage of several deductions related to tax preparation. It can include expenses like:
  • Tax software subscription
  • Hiring a CPA
  • Tax planning guidance
  • Managing your books
Let’s use a real-life example to demonstrate when accountant are fees tax deductible. Say you’re a freelance graphic designer. You’re diligent about keeping your financial records in order, but you have a lot more expenses this year and filing taxes as a self-employed individual can be complicated. To ensure your tax return is accurate, you decide to hire a CPA to handle your tax preparation and provide some tax advice. You both work closely to gather all the necessary financial information, sort through deductible expenses and calculate self-employment tax. And when tax season arrives, your accountant’s fees are tax deductible, too. It’s a win-win!

Are tax prep fees deductible in California?

If you’re an independent contractor in California, there are many business deductions you can take to lower your 1099 taxes, including tax prep fees. 1099 tax deductions are available in every state, and you may even be able to deduct some state-specific deductions from your income taxes. Make sure to research all the available deductions before you file.
 Infographic entitled How Can You Deduct Tax Preparation Fees describing the steps to take the deduction.

Line 10 vs Line 17 of Schedule C

If you’ve looked at a Schedule C recently, you would have noticed that there are two lines for reporting fees – Line 10 and Line 17. Knowing where to report your business-related fees is an essential part of avoiding audits and keeping your returns accurate. Line 10, also called “Commission and fees” is generally used for reporting commissions earned from real estate or sales, administrative fees, bank fees and portfolio management fees. Line 17, also called “Legal and professional services” is usually used for reporting costs related to hiring an accountant, lawyer, attorney or consultant for your business. Some fees can be reported on either line, so it’s important that you stay consistent with whatever option you’re choosing. The IRS will accept your deduction as long you have an approximate estimation and the right documents to prove that it was business-related. So, are investment fees tax deductible? Investment fees are not tax deductible for any taxpayer but you can deduct investment interest if you itemize your deductions on Schedule A. What about hiring an advisor? Are advisory fees tax deductible? Advisory fees related to the management of your investment portfolio are no longer tax deductible thanks to the TJCA. If these advisory fees are linked to tax-advantaged accounts such as Individual Retirement Accounts (IRAs) or 401(k)s, there's a possibility that they may still qualify for a deduction, with some limitations.
Infographic entitled Line 10 And Line 17 of Schedule C showing the difference in expenses reported when taking the tax preparation fees deduction.

Office Supplies Tax Deduction

Office supplies are tax deductible for self-employed individuals and can be reported under the office expenses category on Schedule C.

Phone Tax Deduction

Cell phones can be a business tax deduction for self-employed individuals if it is an ordinary and necessary expense. A separate business cell phone can be fully written off.

Advertising Tax Deduction

Ordinary and necessary promotion expenses and marketing expenses are tax-deductible for self-employed individuals. They should be claimed on Schedule C when filing 1099 tax.

Business Insurance Tax Deduction

Self-employed individuals can deduct business insurance expenses from their 1099 taxes. Sole proprietors and single-member LLCs can claim it on Schedule C.

Meals Tax Deduction

The meals and entertainment deduction in 2023 allows 1099 workers to deduct 50% of business meal costs. Certain meal and entertainment expenses are still fully deductible.

Business Travel Tax Deduction

Expenses related to traveling are deductible for business purposes. A per diem rate is set for deductible travel expenses.

Charitable Contribution Tax Deduction

If you make a charitable donation to an organization, it might count as a tax deduction. Not all charitable donations count as a write-off.

Clothing And Accessories Tax Deduction

Self-employed individuals can take the clothing tax deduction if their clothes cannot be worn outside the work environment.

Commission And Fees Tax Deduction

Self-employed individuals can claim certain commissions and fees as tax deductions if they are related to their business and are ordinary and necessary.

Contract Labor Tax Deduction

If you do any contract labor, you will have to pay contract labor taxes, also known as SE tax. Estimated payments quarterly need to be made for tax liabilities over $1,000.

Internet and WiFi Tax Deduction

Self-employed individuals can deduct some of their internet bills if they work from home as part of the home office deduction. Internet costs can also be reported on Schedule C.

Medical and Dental Tax Deduction

Certain dental and medical costs can be claimed as a medical tax deduction if itemized when paying income taxes. Expenses have to be more than 7.5% of AGI.

Rent Tax Deduction

Rent is tax deductible for self-employed individuals who work from home or have a separate office space. Some states offer renters tax credits to lower state taxes.

Repair and Maintenance Tax Deduction

Capital improvements can be claimed as a tax deduction through depreciation. Repairs to rental properties can be claimed as a business expense.

Shipping Tax Deduction

Business-related shipping expenses are tax-deductible. Shipping supplies and the cost of shipping are included as write-offs.

Software Tax Deduction

Software depreciation can be claimed with the straight-line method, Section 179 or through amortization. Report software depreciation on Form 4562.

Student Loan Payment Tax Deduction

Student loan interest paid is tax-deductible, and every type of education loan qualifies for the deduction.

Taxes and Licenses Tax Deduction

Self-employed individuals can take the license fee tax deduction on taxes and licenses that are ordinary and necessary business expenses.

Training and Education Tax Deduction

The educator expenses tax deduction allows eligible educators to deduct $300 of unreimbursed expenses from their taxes. Use education tax credits to lower tax liability.

Utilities Tax Deduction

Utilities are tax deductible when they are an ordinary and necessary business expense. They can be claimed with the home office deduction or as a rental property deduction.

Vehicle Insurance Tax Deduction

Interest on a car loan is tax deductible if it is used for business. Choose between the standard and actual method when claiming the vehicle deduction.

Vehicle Purchase Tax Deduction

You can claim the vehicle tax write-off if you’re self-employed and use your vehicle for business. It can also be taken if you lease your vehicle.

Mortgage Interest Tax Deduction

The mortgage interest deduction can be claimed by homeowners who itemize their expenses. You could claim the mortgage interest tax credit if you’re in a lower tax bracket.

Office Supplies Tax Deduction

Office supplies are tax deductible for self-employed individuals and can be reported under the office expenses category on Schedule C.

Phone Tax Deduction

Cell phones can be a business tax deduction for self-employed individuals if it is an ordinary and necessary expense. A separate business cell phone can be fully written off.

Advertising Tax Deduction

Ordinary and necessary promotion expenses and marketing expenses are tax-deductible for self-employed individuals. They should be claimed on Schedule C when filing 1099 tax.

Business Insurance Tax Deduction

Self-employed individuals can deduct business insurance expenses from their 1099 taxes. Sole proprietors and single-member LLCs can claim it on Schedule C.

What’s FlyFin?

FlyFin caters to the tax needs of freelancers, gig workers, independent contractors and sole proprietors. But anyone can file taxes through FlyFin! FlyFin tracks all your business expenses automatically using A.I. technology. Then, our CPA team files a guaranteed 100% accurate tax return for you – to save you a couple thousand dollars and a ton of time on your taxes. In addition, you can download the FlyFin app and have your taxes filed in less than fifteen minutes, saving time and money.
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