Tax-Wise Tips to Reduce Your Legal Expenses

No one likes to pay large amounts in legal fees, however one may be relieved to know that certain tax rules can help reduce your bills. While it is almost impossible for taxpayers to be aware of their various tax rules, a tax planner can be of great help. Here are a few tips that can help reduce legal fees.

• Personal Legal Fees are not deductible.

Most of the personal legal expenses like divorce, etc. are not deductible.

• Legal Fees for Tax Advice Are Deductible.

Legal fees for tax advice whether tax planning,  tax qualifies, income, estate, gift, property, sales, use and excise tax, (even though the taxes are personal) are deductible.

• Business Legal Fees Are Deductible.

Any legal fees incurred in business are deductible by corporations, LLCs, partnerships and proprietorships.  However, some fees must be capitalized and added to the basis of assets.  

• Investment Legal Fees Are Miscellaneous Itemized Deductions.

If legal expenses don’t relate to your business but only to investments, you can still deduct them but usually only as a miscellaneous itemized deduction.  That means a 2% threshold, phase-outs and (worst of all) Alternative Minimum Tax    

• Beware Contingent Lawyer’s Fees.

If you recover $1 million in a lawsuit and owe 40% to your contingent fee lawyer, as you have $600,000 the tax has to be paid only on this amount.   In a pure personal physical injury the entire recovery is tax-free, so therefore  it doesn’t usually matter whether you consider the recovery including legal fees. Usually, there is often confusion about what is and is not tax-free.

• Legal Fees in Employment Cases Are Fully Deductible.

Most employment lawsuit recoveries include  either wages (on a Form W-2) or non-wage income (on a Form 1099), even if your lawyer receives 40%, you still must include 100% in your income.  However, it is possible to  deduct the legal fees “above-the-line,” before reaching adjusted gross income.  That means you have no tax–no regular tax and no AMT–on the legal fees.

Tax deductions can alleviate some of the pain of high legal bills.  The tax analysis can be complicated, and you may incur legal fees falling into more than one category.  There are often several ways of allocating fees, so planning can pay off. Take the help of an expert who could offer you the best tax solutions and give you assistance in other taxes like FBAR, Overseas voluntary disclosure, etc.

Important Pointers For Global Tax Planning

Enterprises that are into foreign ventures and business, needs to implement an effective global strategy or they have a risk of witnessing adverse business tax return consequences. The most negative outcome that can take place is that organizations might be unaware and miss the benefits that are available for cross-border business ventures. Global tax hindrances and opportunities are present in even a small firm in U.S that sells products to U.S or is into foreign R&D.

Why global taxation is a complex process?

Several U.S and other foreign tax planning authorities have been aiming for cross-border revenue benefits. They are gradually becoming extremely active and careful in attempting the share of an organization’s FBAR. For instance, the changes and development that has happened in the last decade and the complex global transfer pricing guidelines, require companies to document their annual compliance to set standards for pricing inter-organization transfers of goods and services. This apart, other global taxation policies are changing and is gradually becoming a critical aspect of uninformed enterprise’s that are involved in cross-border business transactions.

Global tax consultants are able to restore the foreign and U.S tax sides of an organization’s business into a unified business and tax strategy. They are all updated with the changing concerns and trends that surround global tax planning and are tracking them consciously.

Efficient International Tax Strategy

If you want to carry out an apt global tax planning, then it is essential to set up a comprehensive global tax strategy that assists in fulfilling the global business objectives. This starts with having an in-depth understanding of an organization’s financial and business conditions, its global operating strategy and where and the manner in which it plans to operate outside with U.S. With these significant data a global tax consultant can help an organization to overcome with an overall global tax strategy that can be practiced and has an appropriate business sense. Global tax planning in case of certain concerns can be managed in a compact way by considering an enterprise’s larger international tax and functional strategies.

Global tax rules remain the same irrespective of the size of the corporate taxpayer. The difference lies in the fact as to how business firms utilize technicalities and legal interpretation to their benefit as compared to the profits of the small scale businesses that just complies with the tax guidelines. Useful tax planning solutions assists the small scale business owners to manage their operations and enable them to leverage the strategies resulting in a lower tax bill.

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