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Is Estate Planning Tax Deductible?

04/27/2023 | Estate Planning

Every year before the tax deadline, people search for as many tax deductions as possible to lower their income tax liability. The California Estate Planning Attorneys at Salvo Law are often asked, “Are legal fees for estate planning tax deductible?”

What is a Tax Deduction?

“A tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state/local taxes paid, mortgage interest, and charitable contributions.”

Tax deductions differ from credits, which can reduce the amount of tax you owe or increase your tax refund. In fact, some credits can give you a refund even if you don’t owe taxes.

The Internal Revenue Service allows tax filers to either choose the standard deduction or itemize deductions. The standard deduction is adjusted every year according to inflation and it varies for different filing status, such as single, married filing jointly, head of household, 65 or older, and others. Common itemized tax deductions include:

  • Real estate taxes
  • Charitable contributions
  • Home mortgage interest
  • Moving expenses
  • Business expenses
  • Student loan interest
  • Health savings accounts
  • Some investments

You should always consult an experienced tax professional with any questions about your federal or California state taxes and possible deductions or credits.

Personal Estate Planning Expenses

Are legal fees for estate planning tax deductible? Under the Tax Cuts and Jobs Act (TCJA) that took effect on January 1, 2018, estate planning fees and costs are not tax deductible on your federal tax return. This means any fees for personal estate planning, including:

  • Wills
  • Trusts
  • Powers of Attorney
  • Advance Directives
  • Conservatorships
  • Guardianships
  • Estate Administration
  • Trust Administration
  • Medi-Cal Planning
  • Probate

However, some provisions of the TCJA will sunset at the end of 2025. This means they will revert back to previous status, which means some provisions will be renewed and allow for some estate planning tax deductions. Of course, which provisions will be allowed is not clear at this time, and changes in politics between the present date and 2025 can occur to impact tax laws. A California Estate Planning Attorney from Salvo Law can advise you on any changes as they arise and how they may impact you.

Allowable Miscellaneous Deductions for Estate Planning

Can you deduct legal fees for estate planning? According to IRS Publication 529, certain estate planning services may fall under miscellaneous deductions for federal tax purposes.

The publication states, “You can deduct certain expenses as miscellaneous itemized deductions on Schedule A (Form 1040). These expenses must be both ordinary and necessary in carrying on your trade or business or in the production of income.”

Therefore, only legal fees related to income-generating assets can be deducted as miscellaneous itemized deductions. Some examples are listed, such as:

  • Accounting fees
  • Investment advisory fees
  • Tax preparation fees
  • Legal fees related to income-generating assets

Simply put, some fees incurred for business-related estate planning may be tax deductible. You should consult with one of our experienced California Estate Planning Attorneys at Salvo Law to see if you qualify. If we assist you with business estate planning, you may be able to deduct some of your legal fees or other costs on your federal income tax return.

Tax Benefits of Estate Planning

One of the primary motivations for astute estate planning is to minimize the possible tax burdens on your beneficiaries. Although California does not have estate or inheritance taxes, your loved ones or other beneficiaries could suffer significant tax penalties if you do not adopt a wise plan for transferring your assets.

  • Will your beneficiaries receive pass-through business income upon your death?
  • Will your beneficiaries be taxed on your remaining retirement accounts?
  • How will you transfer your primary residence or vacation home to your loved ones?
  • Will any charitable contributions be heavily taxed?
  • Are your trust agreements worded to save your beneficiaries from excessive taxation?

These are just a few tax concerns you may wish to discuss with a California Estate Planning Attorney at The Law Offices of Alice A. Salvo in Woodland Hills, CA. Call us today at 818-676-9572 or complete the contact form and request a consultation to discuss the tax implications of your estate plan in California.