Are the legal fees for asserting a claim for damages tax deductible?
April 25, 2023 | 60,00 EUR | answered by Ralf Hausdorf
Dear lawyer,
I am contacting you because I, Erwin Fritsche, recently became a victim of a traffic accident. The accident was caused by another driver who failed to give me the right of way, resulting in significant damage to my vehicle. Since I was not at fault for the accident, I would like to claim compensation to cover the costs of repairing my vehicle and any potential medical visits.
Now I am wondering if the legal fees incurred for claiming compensation are tax deductible. I am concerned about this additional financial burden that has arisen due to the accident and would like to know if I can take advantage of any tax benefits in this situation.
I am unsure if I can declare the costs of legal assistance in enforcing my compensation claims as extraordinary expenses or if they need to be considered in a different tax context. I am also interested in whether there are possibilities to claim the legal fees in the income tax return and if there are specific requirements that need to be met for this.
I hope that you can assist me with this question and provide me with possible solutions to be able to deduct the legal costs for tax purposes. Thank you in advance for your support.
Sincerely,
Erwin Fritsche
Dear Mr. Fritsche,
Thank you for your inquiry regarding the tax deductibility of legal fees in connection with claiming damages after a traffic accident. I am sorry to hear that you have been a victim of an accident, but I will do my best to assist you with your question.
In general, the costs of legal assistance in claiming damages are tax deductible. These costs can be claimed as extraordinary expenses in your income tax return. This includes the legal fees incurred in pursuing compensation for damages after a traffic accident.
However, certain requirements must be met in order to claim the legal fees as a tax deduction. Firstly, the costs must have actually been incurred, meaning you must be able to provide the invoice from your lawyer. Secondly, the costs must have been necessary to enforce your rights. This means that the use of legal assistance in your case was necessary to adequately compensate for the damage you suffered in the accident.
It is important to note that the tax deductibility of legal fees as extraordinary expenses is subject to a maximum amount. This is usually 1% of your total income or 2% of your individual income tax. This means that only costs exceeding this percentage are tax deductible.
I recommend that you carefully keep all receipts and invoices for your legal expenses and include them in your income tax return. If you have any further questions regarding the tax deductibility of legal fees, I am available for a personal consultation.
I hope that this information has been helpful to you and wish you success in pursuing your claims for damages.
Best regards,
Ralf Hausdorf
