In the few weeks remaining until the deadline to file your tax returns with the IRS, you might be scrambling to find whatever tax deductible expenses you can. In the event that you have met with an Estate Planning attorney within the past year, your legal expenses may be deductible.
As a general matter, legal services are considered personal expenses and are not deductible. However, estate planning costs may be deductible in three instances, as set forth by the IRS in Wong, Tax Court Memo 1989-683:
- When the estate planning costs were incurred for the production or collection of income;
- When the estate planning costs were incurred for the maintenance, management, or conservation of property that is being used for the production of income; or
- When the estate planning costs were incurred in the course of tax advice and tax planning.
This means that in most instances, a portion of your estate planning costs are probably tax deductible. The amount that is deductible depends on your specific estate planning needs. For example, if you estate includes any income producing properties such as a small business or a rental property, your plan might meet the first two circumstances outlined above. If no business entities are involved, however, the deductible amount might be substantially lower. (Take note that Tax Planning, as a general matter, is usually a deductible legal expense.)
If you wish to deduct any of your estate planning costs from your taxes, the best thing to do is to request an itemized invoice from your attorney in advance. Ask that the invoice break down the costs of your estate plan into separate categories for advice and services that covered primarily tax planning, planning regarding income producing activities, and then other estate planning services.
This breakdown will ensure that you have a verifiable answer regarding how much you should deduct and will also serve as proof in the event you should be audited. It’s just another way to skim a bit off of your taxable income this year.
If you haven't yet had the chance to meet with an Estate Planning Attorney, you can keep these tips in mind in order to take full advantage of the tax savings for next year.
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