The IRS grants taxpayers many deductions at tax time, which can be helpful in reducing tax liability and possibly maximizing refund amounts. If you were involved in a medical malpractice suit, you might be considering using your attorney fees, as tax deductions. Before you try to take those tax write-offs, read further to see if you are eligible to use malpractice attorney fees as deductions at tax time.

If you are a non-business taxpayer, you cannot take legal fees as tax deductions. Attorney costs for taxpayers are never deductible unless they are in relation to a business. For instance, an employed health professional can use legal fees as a Schedule A deduction. If you win an award in a malpractice suit, and you are a non-business taxpayer, consult a tax professional for advice.

As a business owner, malpractice-related legal fees can be deducted only if the suit directly relates to your business. It doesn’t matter if you win or lose the case, your attorney fees can still be used as write-offs at tax time. For the IRS to accept these legal fees as business deductions, the attorney’s fees must be reasonable. Higher-than-normal rates could cause the IRS to investigate your taxes.

If you are a medical provider who was sued for malpractice, your malpractice attorney fees are almost always tax deductible. In order to deduct malpractice attorney costs at tax time, you must use these fees as business deductions. Regardless of whether you are employed by a hospital or working in your own practice, you can deduct malpractice attorney fees. If you are an employee, however, your expenses will be deducted differently.

Business owners, including doctors working in their own practices, will usually take deductions on schedule C. These deductions are added up dollar-for-dollar and generally have significant impact on tax liability. Employed health professionals, however, must take this deduction on Schedule A. Instead of taking the dollar-for-dollar amount that business owners deduct, employees must add up their legal costs and other eligible Schedule A deductions and subtract two percent of your adjusted gross income. The remaining amount is your eligible deduction.

When determining whether or not your malpractice attorney fees are tax deductible, you must first indicate which group of taxpayers you belong to. If you are a self-employed doctor, your malpractice attorney fees are always tax deductible. In other cases, such as for employed doctors or self-employed individuals, taking malpractice attorney fees as deductions is not as simple. As always, check with your accountant in regards to all tax questions.

The IRS code changed frequently, and your ability to use malpractice-related legal costs as tax deductions heavily relies on the newest statutes. We are only providing general information on this website and in order to determine the best strategy based on the newest tax rules, contact a tax professional. A CPA, enrolled agent or other tax preparer can examine your specific situation and apply the most relevant IRS tax law.