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If you or somebody you love is going through the personal injury lawsuit process, then you will likely be looking for various ways to save money. If you are like many other people, then you are regularly looking for tax deductions as you go through your year. You may even wonder if the fees you pay your personal injury attorney are tax-deductible. Here, we want to examine whether or not lawyer fees are tax-deductible in Kentucky.
There are various reasons why a person may need to initiate a legal action against another individual or entity. This could include filing a claim against a person who caused an injury, filing for divorce, or even incorporating a business.
Regardless of why a person needs an attorney, they may think that they are able to save money on the attorney’s fees, possibly by taking a tax deduction. Unfortunately, this is likely not going to be an option. Even though there may be some personal legal fees that are tax-deductible, most lawyer fees will not be tax-deductible under current law.
When we examine the language of the Tax Cuts and Jobs Act of 2017 (TCJA), a law that currently expires in 2025, we can see that there were major changes made to itemized deductions on taxes. Under this law, miscellaneous itemized deductions were eliminated from the tax code altogether. Individuals who were previously able to claim itemized deductions for attorney’s fees or personal legal fees were no longer able to do so, and they are still no longer able to do so.
There are various other types of tax deductions that were available in 2017 that are no longer available today, including expenses related to personal injury lawsuits, legally changing your name, child custody expenses, divorce settlement expenses, and fees related to the defense of civil or criminal complaints.
In some circumstances, there are some legal fees that are still tax-deductible. The 2017 tax law left deductions in place for legal fees related to employment discrimination claims as well as whistleblower rewards given to those who report a business or entity for fraudulent activities.
When it comes to personal injury settlements, there is good news when it comes to taxes. In general, compensation that a person receives as a result of a successful personal injury claim will not be taxed by the IRS or the state of Kentucky. This includes medical expenses, out-of-pocket losses caused by the incident, property damage expenses, pain and suffering damages, and more.
However, any compensation a person receives to make up for lost wages caused by the injury will be taxed by the IRS and state authorities.
If you or somebody you care about has sustained an injury caused by the negligent or intentional actions of another individual or entity in Kentucky, reach out to an experienced personal injury attorney immediately. A lawyer can help walk you through every aspect of the process. If you are concerned about tax deductions and tax implications of a settlement, we encourage you to speak to your accountant while your claim is ongoing. You need to keep proper documentation of all expenses that you incur as a result of the legal action.