One factor is crucial
When court costs are tax deductible
Updated on November 8th, 2024 – 3:44 p.m. Reading time: 1 min.
Whether legal advice or legal proceedings: both can be expensive. (Source: Christin Klose/dpa-tmn/dpa-bilder)
Illness, commuting, etc.: Taxpayers can deduct many expenses from their taxes. However, when it comes to court costs, this is only possible in exceptional cases.
Are legal fees and litigation costs tax deductible or not? The answer, both simple and unsatisfactory: It depends. Among other things, it depends on which facts should be clarified in the respective legal proceedings. The Taxpayers’ Association points this out.
Legal fees are always deductible if they relate to an employment law matter. According to the Taxpayers’ Association, legal costs depend on whether the process serves to ensure vital needs or not.
For example, a taxpayer was unable to claim her legal maintenance dispute with her ex-husband for tax purposes because her own income was above the subsistence minimum under social law (FG Münster, Ref. 1 K 494/18 E). Things would have looked different if she had earned below the subsistence level.
In contrast, the Lower Saxony Finance Court (case no. 9 K 28/23) a taxpayer to deduct his legal costs. He defended himself in court against a demand for the retransfer of a forestry business that had been given to him free of charge and with which he had made his living ever since. Because the man would have lost his livelihood without this business, the tax office had to take these legal costs into account for tax purposes.
