Apr
11
It’s bad enough to be a defendant in a criminal matter, but then, after the case is adjudicated, your attorney will send you a bill. Although some legal fees are allowable as deductions, these generally relate to keeping your job. A deduction for criminal defense can be tricky depending on the nature of the case and your defense, so it’s wise to consult a licensed tax attorney or accountant before claiming a write-off for criminal-defense fees.
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Legal Expenses
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An attorney will send you an invoice for legal expenses he incurred during your criminal defense. These expenses will generally include hours spent working on the case, the cost of filings and sometimes mileage or direct expenses. You can only deduct expenses you pay for in the tax year, so if you only paid $1,000 on a $20,000 bill, you could only claim the $1,000 actually paid.
Allowable Deductions
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Not all legal expenses are deductible. Internal Revenue Service regulations, promulgated in Publication 529, allow you to deduct legal fees related to performing or keeping a job. But you can’t deduct parking tickets and fines or personal legal expenses.
Case Law
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Although the legal fees associated with a fatal hit-and-run accident are not deductible because they do not directly relate to your business, a criminal prosecution for embezzlement, for example, may be deductible if there is evidence that some of the wrongdoing was directed by your employer. The Supreme Court ruled, in 2009′s Gordon v. United States, that a business executive convicted of embezzlement and records falsification could claim the legal-fees deduction because the defendant claimed his supervisors instructed him to falsify records.
Application
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In general, legal expenses related to employment — for example, a civil suit to fight wrongful termination — are allowable as deductions but personal criminal matters, like an assault charge or armed robbery, are not. However, criminal wrongdoing related to workplace activity may constitute a special case. Before claiming a deduction for this type of legal expense, consult with a tax attorney or accountant to determine the likely validity of the deduction.
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