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.

Donations of $250 or More

You have to obtain a written acknowledgement from the charity to take a deduction on your tax return for donations of $250 or more. A cancelled check is not enough. This is an easy area for the IRS to audit so get those letters from the charities. A lot of charities will give you a yearly summary of all of your contributions which is very helpful.

Donating Stock to Charities

It is usually a good idea to donate stock that has gone up in value to charities. You get to deduct the value of the stock on the day you make the donation and you don't have to recognize any capital gain. How do you determine the value of the stock? The IRS rule states that you use the average of the high and the low price for the stock on the day of the donation which you can look up on the internet or ask your broker.

The Chronically Ill and Taxes

You are defined Chronically Ill by IRS standards if you can't do two of the six normal daily tasks of eating, bathing, dressing, toileting, transferring, and continence without substantial assistance. Bathing and dressing are the two that usually apply first it seems. You are also chronically ill if you have Alzheimer's disease or similar dementia. If you are so classified, then all expenses including room, board, and personal care are deductible as  medical expenses. With nursing home and assisted living costs so high, you can quickly exceed the 7.5% of adjusted gross income threshold for medical expenses so you can get a benefit for the deduction. A licensed health care provider needs to certify your condition.