deductibility of legal fees
Hi
I have incurred and paid legal fees stemming from a breach of contract lawsuit for income received in the year 2005. However, the lawsuit was not filed until 2006, and I am currently paying the legal fees in 2007. Because the lawsuit stemmed from business income in 2005, is the money i have paid in 2007 for legal/atty fees tax deductible, if so, is it deductible for 2005,2006, or 2007. I earned income from this consulting business in 2006 and 2005, but have not earned any in 2007. Your help is appreciated.
Re: deductibility of legal fees
legal fees related to production of income are deductible. if you are a cash basis taxpayer the deduction must be taken in the tax year paid. consult your tax return preparer as to whether you should report the expense on schedule c or as a miscellanous deduction on schedule a.
