Taxpayer asks:
Hi taxgirl, I have a strange question. I write a food blog. I create and cook all of my own recipes and post them online. Two years ago, I found out that someone was stealing my recipes and some of my photos and using them on another site. I ended up hiring a lawyer to stop them. I won but it was expensive. I thought I could take it as a deduction but my lawyer said that I cannot because I am not incorporated. Help!
Taxgirl says:
I get a lot of variations on this question regarding legal services. The confusion stems from the fact that legal services are generally not deductible to individual taxpayers. The rule is that legal fees which are personal in nature are never deductible. You can’t deduct the cost to sue your neighbor over the tree that hangs into your yard or the cost to get your new shed through zoning. However, you can deduct the cost of legal services related to producing or collecting taxable income or getting tax advice (you may want to remember this one for the future). These expenses are deductible on Schedule A as miscellaneous itemized deductions.
However, if you are a business taxpayer, you can deduct any legal expenses that can be considered business expenses. In order to be deductible, the legal expenses must be “ordinary and necessary” and directly related to operating your business.
You do not need to be incorporated to take this deduction, you merely need to report the expenses on your Schedule C. Legal expenses would be reported on Line 17 on the Schedule C.
The costs of protecting your content are clearly deductible as a legitimate business expense on either Schedule (A or C). Other legal services related to your business would likewise be deductible.
Congrats on the win – it sucks when someone is filching your content. And deduct away!
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
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So glad you set her straight. Too bad the lawyer she hired to give her advice and litigate her case didn’t refer her to a lawyer who was competent to address the tax issue, instead of guessing.