Don't miss out on these valuable business tax deductions.
By Stephen Fishman, J.D. · USC Gould School of Law
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If you own a business, you can deduct fees paid to attorneys, accountants, consultants, and other professionals as business expenses if the fees are paid for work related to your business. For example, say that Iris, a freelance writer, hires attorney Jake to represent her in a libel suit. The legal fees Iris pays Jake are a deductible business expense.
Legal and professional fees for personal purposes generally aren't deductible. For example, you can't deduct the legal fees you incur if you get divorced, or you sue someone for a traffic accident injury. Nor are the fees you pay to write your will deductible, even if the will covers business property that you own.
Buying Long-Term Property
If you pay legal or other fees in the course of buying long-term business property, you must add the amount of the fee to the tax basis (cost) of the property. You may deduct this cost over several years through depreciation or deduct it in one year under IRC Section 179.
Starting a Business
Legal and accounting fees you pay to start a business are deductible only as business start-up expenses. You can deduct $5,000 of start-up expenses the first year you're in business and any excess amounts over 180 months. The same holds true for incorporation fees or fees that you pay to form a partnership or LLC.
Accounting Fees
You can deduct any accounting fees that you pay for your business as a deductible business expense. For example, fees you pay an accountant to set up or keep your business books, prepare your business tax return, or give you tax advice for your business.
Self-employed taxpayers may deduct the cost of having an accountant or other tax professional complete the business portion of their tax returns—Schedule C and other business tax forms—but they can't deduct the time the preparer spends on the personal part of their returns. If you are self-employed and pay a tax preparer to complete your Form 1040 income tax return, make sure that you get an itemized bill showing the portion of the tax preparation fee allocated to preparing your Schedule C (and any other business tax forms attached to your Form 1040).
Get More Information
For more information on tax issues affecting small businesses, get Deduct It! Lower Your Small Business Taxes, by Stephen Fishman (Nolo).
If you need more help, talk to a tax professional, such as a certified public accountant or a tax attorney. A tax professional can prepare tax returns or provide tax information, guidance, or representation before the IRS.
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