Estate Planning Services May Be Tax Deductible
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As the end of the year draws near, many of us are paying close attention to tax deductions. Did you know that if you met with an estate planning attorney within the past year, your legal expenses may be tax deductible?
In both Merians v. Comm’r, 60 TC 187 (1973) (involving estate planning using an irrevocable trust) and Wong v. Comm’r, TC Memo. 1989-683 (1989) (involving estate planning using a revocable trust), the Tax Court ruled that twenty percent (20%) of a non-itemized estate planning bill was deductible as tax advice under Section 212(3).
Attorney’s fees are deductible only to the extent they exceed 2% of the taxpayer’s adjusted gross income and they are subject to a phase out when the adjusted gross income exceeds a certain amount. They cannot be taken into account in computing the alternate minimum tax. In order to take advantage of the 2% rule, the client should pay all deductible legal fees in one year.
Attorney’s fees are deductible to the extent they are incurred*:
- to produce income that is includable in the recipient’s gross income;
- for the management, conservation, or maintenance of property held for the production of income;
- in connection with the determination, collection, or refund of any tax;
- to the extent they are paid for tax planning advice**
Expenses, to be deductible under section 212, must be “ordinary and necessary.” Thus, such expenses must be reasonable in amount and must bear a reasonable and proximate relation to the production or collection of taxable income or to the management, conservation, or maintenance of property held for the production of income.* When deductible, attorney’s fees are treated as “miscellaneous itemized deductions.”
Here at The Law Firm of Evan H. Farr, P.C., we suggest that 20% of the total fees that you paid to our firm can appropriately be considered deductible tax advice. If you haven’t yet had the chance to meet with an Estate Planning Attorney, make an appointment for a free consultation by calling us at 703-691-1888. Mention this article and receive a 20% discount on Estate Planning before the end of 2012.
Sources:
* IRC § 212, Regs §1.212-1
** (IRC § 212(3); Carpenter v. United States, 338 F.2d 366 (Ct.Cl.1964); Rev. Rul. 72-545, 1972-2 CB 179).
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Frequently Asked Questions about the "Fiscal Cliff" and What it Means for Seniors
Q: What is the "Fiscal Cliff"?
A: The "fiscal cliff” refers to the substantial changes to tax and spending policies that are intended to significantly reduce the federal budget deficit. These changes are scheduled to automatically take effect in January 2013.
Q: How do the plans associated with the “Fiscal Cliff” affect seniors?
A: The Democrats' plan includes an end to the Bush tax cuts for those making more than 250K and cuts to Medicare and other entitlements over 10 years equal to $400 million ($40 million a year). The Republicans' plan favors cutting $600 billion ($60 billion a year) from federal health programs, in part by increasing the Medicare eligibility age from 65 to 67 and saving $200 billion ($20 billion a year) by applying a less generous measure of inflation to all federal programs, including Social Security benefits, which would slow the growth of those programs.
Q: Why do lawmakers think cuts to Medicare will settle the budget problem?
A. Lawmakers on both sides agree that somehow reining in the cost of Medicare for the elderly and disabled is key to settling the budget problem. In the fiscal cliff negotiations, Obama and politicians of both big business parties claim there is “no money” for Medicare and other social programs. Americans are living longer. Chronic diseases are more common. The cost of medical care is rising in general with more drugs and innovations in treatment available.
For more information about the Fiscal Cliff and what it means for Medicare, read our Everything Elder Law Blog Post.
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