With Apologies to Dear Amy: Tax Advice for Couples with Marital Problems – Part 3by
Question: I'm filing for a divorce. Because my husband is again between jobs, I'm stuck with paying my legal fees, and they're out of sight. How much of a tax break do I get for my legal fees?
Answer: Not much, unfortunately. You get an itemized deduction on Schedule A of Form 1040 for legal fees incurred to obtain a divorce or separation only to the extent that those outlays are for tax research and advice on such items as property transfers and dependency exemptions for the children.
Moreover, the law curtails write-offs for miscellaneous itemized deductions, a category that includes payments for tax advice, as well as investment expenses and unreimbursed employee business expenses. Most miscellaneous deductibles are allowable only to the extent that their total in any one year exceeds 2 percent of your adjusted gross income. Anything below the 2 percent floor is nondeductible. There’s an exception to the 2 percent limitation for gambling losses. But wagering losses are allowable only up to the amount of wagering winnings.
What to do when your attorney’s services include counseling on taxes. Make sure the bill shows a reasonable breakdown between the nondeductible portion charged for the divorce and the deductible amount charged for tax advice that can be included with your other itemized deductibles. That way, assuming you overcome the 2 percent threshold, you’re able to substantiate your deduction in the event of an audit. Another limitation is that miscellaneous deductions can’t be claimed by someone subject to the alternative minimum tax.
Q: My future husband decided to break our engagement two days before the wedding, so I kept his engagement gifts, including a very expensive ring. Am I liable for income taxes on these gifts?
A. No. Gifts don’t count as reportable income on your tax return.
Q: Can a husband take a business-expense deduction for legal fees to defend his wife on shoplifting charges?
A: The Tax Court refused to go along with a New York husband who claimed this deduction because his wife would have lost her job if jailed. Nor would the court allow a man to deduct legal fees for successfully defending himself against a charge of murdering his sister-in-law. It was unimpressed with the argument that the man's business “would have been destroyed” if he’d been found guilty and sent to prison.
About the author:
Julian Block writes and practices law in Larchmont, New York, and was formerly with the IRS as a special agent (criminal investigator) and an attorney. More on this topic is available from “Julian Block’s Year Round Tax Strategies,” available at julianblocktaxexpert.com.