Business owners can generally deduct business legal expenses on their tax returns. The taxpayer bears the burden of showing that the legal fees arose from business, rather than personal issues. In one case, a physician specializing in gene therapy and his wife (a surgeon) had multiple legal issues and deducted legal expenses of $360,295 for two years on their Schedule C business tax returns. The U.S. Tax Court found that most of the legal fees were to defend the husband against personal conduct issues, including a sexual offense conviction. The court denied the deduction for personal legal expenses but allowed a deduction for $13,000 for business-related legal expenses.
(TC Memo 2023-42)
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