Not long ago, this was a complicated question. Prior to the Tax Cuts and Jobs Act of 2017, some personal legal fees were tax deductible, though most were not. Those that were deductible were, for the most part, deductible as “miscellaneous expenses,” which meant that they were deductible only if they exceed 2% of your adjusted gross income. In other words, it could be difficult to determine which fees were and were not deductible. And, if you had deductible legal fees, you could claim them only if you itemized deductions.
The 2017 law simplified the question, but not in the way you may be hoping. Miscellaneous deductions, including many types of legal fees, have been suspended. So, Jacksonville residents won’t be able to claim an income tax deduction for estate planning fees in 2019.
Notably, the suspension of miscellaneous deductions is temporary under the current law. These deductions have been eliminated for tax years 2018 through 2025. However, without further action, the deductions will be restored for tax year 2026.
How Does The 2017 Tax Reform Impact Florida Residents?
Although the elimination of deductions is never good news for a taxpayer, this change likely won’t have much effect on most Florida taxpayers engaging in estate planning. Most of the core legal services performed by an estate planning lawyer were non-deductible even before the law change. These include:
- Creation of a will
- Drafting of a codicil to a will
- Creation of a healthcare directive
- Creation of most powers of attorney
Even before the law change, only a handful of estate-related services were considered deductible expenses. These included services such as:
- Tax planning advice and services
- Legal fees relating to income-production, which could include trust matters
Since estate planning services are often comprehensive, it was sometimes difficult for taxpayers to break out and document the amount of fees paid for deductible services. And, of course, claiming those expenses depended on reaching a certain threshold and then itemizing deductions.
Are Any Estate Planning Legal Fees Still Deductible?
Deductions for personal legal fees have largely been eliminated for the time being, including well-known, longstanding deductions like the costs of tax-related advice and tax preparation. There are a few exceptions, but they fall outside the area of estate planning. These include some legal fees related to employment disputes, such as discrimination claims.
Are Legal Fees Considered Business Expenses?
It’s important to note that legal fees remain deductible as trade and business expenses. Thus, the legal costs of doing business such as assistance in structuring a business entity, contract review, and even legal fees incurred in defending most lawsuits against a company remain deductible. These costs of doing business can typically be deducted even if the taxpayer is operating a sole proprietorship and so filing only an individual tax return.
The Good News about Estate Planning and Taxes
Estate planning services aren’t tax deductible in 2019, but that doesn’t mean those services won’t cut down your tax bills—at least, for the future. One of the many benefits of a comprehensive estate plan is that your estate lawyer and financial professionals can advise you as to the best way to structure your holdings, gifts, bequests, and other transactions to minimize tax debt.
A carefully-considered estate plan also protects assets and the value of your estate in many other ways, including:
- Ensuring that your loved ones receive the property you choose to pass to them
- Ensuring that your assets are well managed and preserved if you are incapacitated
- Ensuring that your trust structure and chosen trustee will profitably manage trust assets
- Reducing the possibility of costly estate litigation after your death
- Preventing dissipation of family assets through divorce or death
The bottom line is that, tax deductible or not, estate planning services provide a wide range of benefits to you and your family. In addition to the purely financial considerations listed above, your estate planning attorney can assist you with the creation of healthcare directives, nomination of a guardian for your minor children, and structuring and titling of assets during your lifetime.
If you haven’t created a comprehensive estate plan or your estate plan may be out of date, it is in your best interest to speak with an experienced Jacksonville estate planning lawyer as soon as possible.