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L spent a lot of money for attorney. l was told l can claim…

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l spent a lot of...
l spent a lot of money for attorney. l was told l can claim this money on schedule A. However the person who is working on my tax return keeps telling l have imitation for deduction and because of that l am not getting tax credit for the money l paid for attorney. what should l do?
Submitted: 1 month ago.Category: Finance
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3/11/2018
Financial Professional: Lane, JD, CFP, MBA, CRPS replied 1 month ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 13,993
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

Hi. My name’s Lane …

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents, since 1986.

I’m reading your question now.

Bear with me a moment while I type up my response.

….

Then if you have further questions we can go from there.

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Financial Professional: Lane, JD, CFP, MBA, CRPS replied 1 month ago

First, if the attorneys fees ARE deductible, the only limit is the little 2% of AGI limitation that applies to ALL miscellaneous itemized deductions.

...

See this from IRS:

...

"Only about one/third of all taxpayer itemize. Since personal attorney fees are a miscellaneous itemized deduction, they are limited by the two percent rule: They are deductible only if, and to the extent, they (along with all your other miscellaneous deductions, if any) exceed 2% of your adjusted gross income (AGI)."

...

Bus as long a the award or settlement is taxable you generally get to deduct ... the exception to his would be punitive damages.

...

However, if this was an award for anything related o physical injury or sickness, then the award is not taxable and attorneys fees not deductible.

...

Can you temm me a little more about the type of case here?

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Customer reply replied 1 month ago
l invested money in in someone business. later l found out the business is fraud and l hired an attorney to get my money back. so they told me the attorney fee l paid is tax deductible and l can put is on schedule A. However my tax person keeps telling me l have reached the limitation and l cannot add or put more stuff. So l am not getting tax return on the money l paid for attorney. Is it possible to put it in somewhere else beside Schedule A?
Financial Professional: Lane, JD, CFP, MBA, CRPS replied 1 month ago

OK, his likely has to do with the PHASEOUT of itemized deductions based on income. (Itemized deductions are not limited based on total amount of deductions per se).

...

Your itemized deductions may be limited and your total itemized deductions may be phased out (reduced) if your adjusted gross income for 2017 exceeds the following threshold amounts for your filing status: Single - $261,500. Married filing jointly or qualifying widow(er) - $313,800

...

Could also be that the total itemized deductions are causing the AMT (Alternative Minimum tax) to kick in.

...

Exemption amounts are set by law for each filing status. Since 2013, the exemption amounts have been adjusted each year for inflation. The exemption amounts for 2015 are:

  • $53,600 for single filers
  • $83,400 for married filing jointly and qualifying widow(er)
  • $41,700 for married filing separately

The AMT rate has increased substantially since its creation, but regular tax rates have decreased. So, instead of the AMT rate being much lower than regular tax rates, the regular tax rates are often lower than the AMT rate.

The AMT is a parallel tax system. You must:

  1. Complete your regular return.
  2. Complete AMT Form 6251.
  3. Compare the two taxes.
  4. Pay the higher of the two taxes.

You can’t claim many of the deductions you can claim for your regular tax computation for the AMT.

...

If you itemize, you can’t claim as many deductions for the AMT as you can on your regular return. You must add them back into your income. The only itemized deductions allowed for AMT include:

  • Medical and dental expenses more than 10% of the regular tax AGI
  • Charitable donations
  • AMT investment interest to the extent of net AMT investment income
  • Qualified housing interest
  • Casualty losses
  • Miscellaneous deductions not subject to the 2% of AGI limitation

...

Attorneys fee are one of the itemized deductions that ARE taken away for AMT purposes.

...

The only way you can treat this in an unlimited way is if you were in the business of investing in other businesses, where you could deduct thin on schedule C as a business expense.

...

you DO, however get a capital loss deduction ... but capital losses are only useable against capital GAINS (along with 3000 against all other income ) and can then be carried forward and used the same way each year, until finally used up.

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Customer reply replied 1 month ago
l am filing married jointly. our income is about 140,000 that is all. we have two little kids also. Can you make your answer short and understandable. l cannot understand what you pasted in here.
Financial Professional: Lane, JD, CFP, MBA, CRPS replied 1 month ago

The only thing pasted are the phaseout limits for itemized deductions and the AMT amounts. Those are what they are.

From what you've said here (thanks for that additional income information) it's the AMT reductions from itemized deductions that's getting you.

...

If this was a personal investment and not a business investment (meaning an investment from YOUR business) then the capital loss (again, can only be used against capital gains and then 3000/yr against other income) is the only tax relief you have here.

...

So sorry

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Lane, JD, CFP, MBA, CRPS
Category: Finance
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Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986

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