Can You Deduct Legal Fees for Wills and Estate Planning?

It seems like you should be able to doesn't it, but there is a catch. You can only deduct them if the fees relate to tax matters. Ask the attorney to break out the tax advice part of the bill on his invoice and then you can deduct that portion. The general rule is that you can deduct legal expenses paid in connection with the determination, collection or refund of any tax or in the production or collection of taxable income.

INVESTMENT TRAVEL

You can deduct trips to your broker, financial advisor, and to look after investment property. However, you can't deduct attending shareholder meetings with certain exceptions such as proxy fights, or investment seminars and conventions. The management or conservation of investments is generally deductible.

Offers in Compromise

Offers in compromise is an IRS process where they will consider settling your tax debt for a lower amount. You hear a lot of tax experts advertising that they can settle your tax debt at pennies on the dollar. This is the process they are talking about. You have to pay a $150 application fee and fill out a long financial form. There is no negotiation as the form calculates the amount you can pay after an allowance for basic living expenses. Most offers are rejected by the IRS and only 20% are accepted. It is a tough way to go.

What You Should Know About IRS Penalties

One of the worst penalties is the failure to file penalty of 5% of the unpaid balance for each month or part of a month that the return is late up to a maximum of 25%.  So you should file a return or an extension even if you can't pay. There is also a .5% penalty per month or part of a month up to a max of 25% of the unpaid balance for failure to pay tax on time. If you don't have a reasonable explanation for not reporting a 1099 amount or a W-2 amount, you are subject to a 20% accuracy related penalty on the underpayment amount. Along with the above penalties, the IRS also charges interest on the unpaid amount from the due date of the return until paid. Currently the interest rate is an annual rate of 4% which can change each quarter. As you can see penalties and interest can add up fast.