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Lev
Lev, Tax Advisor
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What are the rules with getting donations for legal fees from

Resolved Question:

What are the rules with getting donations for legal fees from friends and family members? Are the donations tax deductible? And do I as the one accepting the the donations need to claim the the money on my tax return for 2010, or how does that work? I hope I'm making sense.
Submitted: 4 years ago.
Category: Tax
Expert:  Lev replied 4 years ago.

For income tax purposes such donations most likely should be classified as gifts.

If that is a gift - means you do not pay them back - that is not a taxable income for you.

 

As a recipient of a gift - you do not need to claim it as income. Regardless of the value of the gift. Please see for reference IRS publication 525 page 34 (left column)- http://www.irs.gov/pub/irs-pdf/p525.pdf

Gifts and inheritances. Generally, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you. If property is given to a trust and the income from it is paid, credited, or distributed to you, that income is also taxable to you. If the gift, bequest, or inheritance is the income from the property, that income is taxable to you.

 

The donor - your relative - might be required to file a gift tax returns if the gift amount is above $13,000 per person per year (for 2010).

There will not be any gift tax unless lifetime limit of $1,000,000 is reached.

 

Taxpayers may claim a deduction for charitable contributions to a qualified non-profit organization.

However - to be deductible - the contributions must be made to a qualified organization and not set aside for use by a specific person.

The contribution for a specific person or that benefits a specific person may not be deducted.

Please see for reference IRS publication 526 - www.irs.gov/pub/irs-pdf/p526.pdf

 

If your legal expenses will generate a taxable income - they will be deductible.

Let me know if you need any help.

 

Customer: replied 4 years ago.

What do you mean by, "If your legal expenses will generate a taxable income- they will be deductible?"

The gifts from friends will only be used for legal fees, nothing additional. What would make the money qualify as taxable? Is there something I need to do or not do, as the case my be, to make sure its not taxable income?

Expert:  Lev replied 4 years ago.

 

Gifts from friends and family members - are not your taxable income - I sited above a reference to the IRS publication this matter.

 

If you pay legal fees - that is not your income - that are expenses.

 

Depending on the outcome - your litigations may result with taxable income - as a court award or a settlement. In this case - your actual legal expenses may be used as a deduction and will reduce your tax liability. So I suggest to keep track of all your legal expenses.

 

Sorry for confusion.

Let me know if you need any help.

 

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22704
Experience: Taxes, Immigration, Labor Relations
Lev and 5 other Tax Specialists are ready to help you
Customer: replied 4 years ago.
This is great. I'll contact you again when I have more questions. I like how you explain things. Thank you so much!

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