Business owners can generally deduct “ordinary and necessary” business costs, including eligible legal fees. In one U.S. Tax Court case, a taxpayer argued he was entitled to deduct nearly $600,000 in legal expenses on his return. He claimed the expenses were related to a fraud loss at an investment company where he worked as the president and managing director. The IRS and the court disallowed the expenses because the taxpayer couldn’t prove they were ordinary and necessary. He also didn’t show they were incurred during the tax year in question. For example, many of the legal invoices submitted were for other years. (TC Memo 2024-103)
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