Few legal battles are more intense and emotionally excruciating than a child custody fight. Whether or not you win more access to your child, the substantial legal fees you may have racked up defending your right to remain part of your child’s life are not tax deductible. However, there are legal fees related to divorce that are tax deductible under certain circumstances.
Deductible Divorce-Related Legal Expenses
The IRS permits deductions for legal expenses relating to tax advice in a divorce as long as the bill spells out exactly the amount charged for tax advice. The IRS states that such tax advice expenses are “determined in a reasonable way,” so don’t ask your matrimonial or tax attorney to do any creative accounting so you can take the deduction. The easiest way to clarify what constitutes tax advice in a divorce case occurs when a tax attorney, rather than your divorce lawyer, handles the tax implications of the divorce and sends you a separate bill. If your divorce lawyer works for a large firm, the tax department of that firm may handle this specific matter and clearly delineate the amount of time spent on the matter and the amount of tax you must pay.
The deduction for tax advice fees does include all types of taxes, not just advice on how to handle income taxes most commonly discussed in divorce matters. Applicable tax advice may include estate taxes if you must change your estate plans because of the divorce. The IRS allows you to deduct legal fees when they were spent trying to collect taxable alimony. If you paid legal fees relating to some aspect of your divorce’s property settlement, such as the amount necessary to create and file a deed putting the former marital home in your sole name, those fees are deductible.
The 2 Percent Limit
Deductions for legal expenses related to tax advice or the collection of taxable alimony fall under the IRS’ 2 percent limit. That means that you can claim only such expenses that are above 2 percent of your adjusted gross income. You will find your AGI on Form 1040, line 38, or Form 1040NR, line 37. Use Schedule A and subtract 2 percent of your AGI from the total of all your miscellaneous deductible expenses. Before doing this, first apply other deduction limits. For example, if you are taking advantage of a 50 percent limit on business meals, you must apply that before figuring out your 2 percent miscellaneous deduction amount.
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Other Divorce-Related Deductions
Besides certain legal fees, you may deduct some other expenses related to your divorce. That includes accountants, when it pertains to tax advice, and appraisers and actuaries who may help you determine the taxes you owe or aid you in receiving alimony.
Child support is not deductible for the payer. The recipient does not have to pay taxes on this income. However, the parent paying child support may claim the child as a dependent in some circumstances. Usually, the primary custodial parent, the person the child lives with for the greater part of the year, can claim the exemption. The custodial parent can allow the other parent to take the child exemption by filing Form 8332, “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent.”