Legal Fees Tax Deduction
The cost of going to court can get expensive. When legal fees begin to increase, spouses start to look for ways to recapture their money spent. One question that clients have is whether they can claim their fees on their tax returns. The answer is yes, some legal fees can be deducted from your total taxable income on your tax return, but it depends on the type of legal proceeding.
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In general, legal fees cannot be claimed on income tax returns in relation to the following procedures:
1. Fees spent in relation to a claim for custody of the children;
2. Fees spent to obtain a divorce or negotiate a separation agreement;
3. Fees spent to establish a right to spousal support after divorce; and
4. Fees spent to obtain a lump-sum spousal support amount.
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Legal Fees Tax Deduction
Legal fees spent by a party who successfully receives support by court order are tax deductible. This is true if the fees are spent on any of the following procedures:
1. Fees spent to enforce an existing order for child support or spousal support
2. Fees spent to vary an existing order for child or spousal support;
3. Fees spent to defend a reduction of child support or spousal support
If your fees paid fall into one of the categories listed, you are able to claim them as a deduction in the year that they are paid. For example, if you brought a motion forward for child support in October, 2017, and successfully obtained an order for child support you would be able to claim your legal fees for that motion on your 2017 taxes.
Note: if you receive a costs award from the court for being successful in your claim for support and the other party pays them, the amount of the cost award must be deducted from the amount paid in legal fees before they are reported on your income tax return. Alternatively, if you pay the fees in one year, but receive payment for a costs award in the next year, the costs would no longer be deducted from the fees, but included as income on your tax return.
Legal Fees CRA Deductibility
Legal fees spent by a party who becomes responsible for paying support are not deductible under any circumstances. This includes if the legal expenses are incurred to reduce support payments. Also if they were incurred to contest applications for support to be increased.
The above is general information regarding the tax treatment of legal fees. As lawyers, we are unable to provide you with tax advice when filing your income tax return. If you have questions about adding your legal fees into your return, make sure to speak to a financial advisor.
They will be able to give you advice in relation to your specific circumstances and whether your costs would be deductible. For all other issues related to your family law matter, speak to us. We would be happy to answer any questions you may have about family law.
Tax and Family Law
You’ve come to terms with what items you are keeping and what your ex is taking; the family home is sold and the money is with the real estate lawyer waiting to be paid out; you’ve gone through your assets and have a proposal ready to go to finish your property division once and for all. But have you taken the time to check on your penalties and tax implications?
Most people are in a rush to get their divorce or separation dealt with as soon as possible. They often don’t want to think about the specific details surrounding what their property division will look like. They just want to get it done as soon as possible. This can have a huge impact on their personal finances at year end, or even after they sign the agreement to pay out what they think they should, and their bank informs them that they cannot process the payment to their ex.
Family Law Firm
Investments, long term savings accounts, pensions, property holdings and even personal business holdings can all have tax or penalties attached to them. They can become active when you try to transfer them to your ex-spouse. RRSP’s are the ones most people are aware of. Whenever money is taken out of an RRSP, there is automatically a certain amount of tax that is owed on the withdrawal amount. Other investments that are supposed to be locked in for extended periods of time can also have tax related complications attached to them.
Even worse can be penalties that the specific investment institution will claim against you for removing the funds prior to the maturity date of the investment. In order to protect your property and make sure that you are not signing up for a division of property that you can’t afford, you need to take the time to discuss your property holdings with both your accountant and your ClearWay Law lawyer.
These professionals can help guide you through what your actual cash value is at the time of your separation. This is important so you are not signing off on documents that leave you with less than half of your personal holdings.
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