If you are stuck doing your own allocation, here are some things to consider when calculating the tax deduction. Attorney’s fees paid in connection with drafting a credit shelter trust, formulating generation skipping tax provisions, marital deduction planning, tax apportionment planning, or income tax basis provisions are deductible expenses. Additionally, time spent on IRA matters may also constitute tax advice because they may relate to the proper apportionment of estate tax in connection to the IRA or planning for required minimum distributions. Alternatively, time spent drafting a will or dispositive provisions have been found to be non-tax related and therefore not deductible.
Before you put yourself through the ringer to do a calculation to determine the deductible amount, make sure the deduction will result in tax savings. Many times, these deductions do not result in tax savings due to the 2% floor on these expenses. Meaning, only the amount of these expenses that exceed 2% of the taxpayer’s adjusted gross income is deductible for tax purposes. If you find that you have enough expenses to qualify for the deduction you may also find yourself in Alternative Minimum Tax (AMT), which is hitting a greater percent of the population each year. If you find yourself in AMT you will likely see no tax savings on your tax returns as a result of these expenses.
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