Estate Planning and Tax Deductions

If you’ve paid estate planning legal fees, a portion of those fees paid might be deductible for federal income tax purposes. Section 212 of the Internal Revenue Code states that for individuals, a deduction is allowed for all the ordinary and necessary expenses paid or incurred during the taxable year in three cases. First, for the production or collection of income; second, for the management, conservation, or maintenance of property held for the production of income; and third, in connection with the determination, collection, or refund of any tax type.

Estate Planning: Determination, Collection, or Refund

Essentially, this means that limited deductions are available for some portion of estate planning legal fees. For clarity’s sake, make sure there is a clear division noted in the invoice for the portion of fees related to work toward the “determination, collection or refund of any tax.” In general, that part of the estate planner’s legal fee for tax planning should be deductible, subject to the 2% floor for miscellaneous itemized deductions. Also, any expenses paid for tax counsel, or any proceedings involved in determining the extent of tax liability, are generally also deductible.

Wills

The fee charged for drafting a will is usually not deductible. However, the will may have considerable tax planning significance, and in that case, the estate planner can quantify the portion of time spent on that part of the legal work to provide a relative allocation of the total legal fee.

Revocable Trusts and Property Management

One more example where legal planning fees may be applicable for deduction is when they are related to the conservation and management of property. If you have a revocable trust that is funded with an income-producing property, the planning of the revocable trust might qualify as a tool for management and conservation of property. Again, a portion of the legal fees for planning the trust could be claimed as a deduction on federal income taxes.

In each case, there are details and circumstances to evaluate to determine deduction eligibility. Ask your estate planning attorney which services provided apply, and itemize that portion of your legal fees that fall under Section 212 of the Internal Revenue Code.

Tax Preparation and Estate Planning with Cohen & Burnett

Cohen & Burnett provides tax preparation and estate planning services, and they may even be tax deductible! Our process begins with an evaluation of your estate planning goals and objectives and then proceeds with the drafting of appropriate legal documents to accomplish those objectives. For more information on our team and services, please visit our homepage.

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