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Tax Reform Update: Legal fees can no longer be deducted as a miscellaneous deduction.

Per IRS Publication 529 Miscellaneous Deductions, on page 2:

Unreimbursed Employee Expenses

You can no longer claim a deduction for unreimbursed employee expenses unless you fall into one of the following categories of employment, or have certain qualified educator expenses.

  • Armed Forces reservists.
  • Qualified performing artists.
  • Fee-basis state or local government officials.
  • Employees with impairment-related work expenses.

Unreimbursed employee expenses for individuals in these categories of employment are deducted as adjustments to gross income. Qualified employees listed in one of the categories above must complete Form 2106 to take the deduction. Certain qualified educator expenses are also deducted as an adjustment to gross income but you are not required to complete Form 2106.

You can deduct only unreimbursed employee expenses that are:

  • Paid or incurred during your tax year,
  • For carrying on your trade or business of being an employee, and
  • Ordinary and necessary.

An expense is ordinary if it is common and accepted in your trade, business, or profession. An expense is necessary if it is appropriate and helpful to your business. An expense doesn't have to be required to be considered necessary.

On page 5: Legal Expenses

Legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax are miscellaneous itemized deductions and are no longer deductible.

TIP: You can deduct legal expenses that are related to doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business.

You can deduct expenses of resolving tax issues relating to profit or loss from business (Schedule C), rentals or royalties (Schedule E), or farm income and expenses (Schedule F) on the appropriate schedule. Expenses for resolving nonbusiness tax issues are miscellaneous itemized deductions and are no longer deductible.

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.


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