Are the legal fees incurred (paid) for collection of Social Security Benefits deductible?
Legal fees are claimed in the Miscellaneous section of the Form 1040 Schedule A (Itemized Deductions). The total amount of the miscellaneous deduction section is subject to a 2% limit of adjusted gross income (line 33 of Form 1040 for the year 2000). The amount above the limit is the amount of the allowable deduction. In order to deduct legal fees that were paid to collect your Social Security Benefits some of these benefits must be taxable. Since Social Security Benefits are never 100% taxable the deduction for the legal fees paid to receive them are never 100% deductible. You must prorate the legal expenses in the same ratio that the Social Security Benefits are taxable. Example: You receive $20,000.00 in total benefits, and of the benefits received, $12,000.00 are subject to tax. Based on this, 60% of your benefits are taxable (12,000/20,000 = 60%). You had legal fees of $5,000.00 to collect your Social Security Benefits. Your allowable deduction for legal fees would be $3,000.00 ($
