Legal fees for drafting a client contract belongs on Line 17, legal and professional services.
Why line 17
Legal work on the ordinary running of the business, such as drafting or reviewing a customer contract, a service agreement or a non-disclosure agreement, is a line 17 professional service in the year you pay it. The test is the origin of the legal work: work about current operations is an ordinary expense, work about acquiring an asset or bringing the business into existence is not. Templates a lawyer builds for repeated use are still ordinary operating legal work.
Stop looking up lines one at a time. ClaryBook totals your year into an IRS Schedule C worksheet in form order, Part I and Part II line by line, so legal fees for drafting a client contract lands on Line 17 without you sorting it.
Start for freeWhat legal fees for drafting a client contract is confused with
- Line 27a, other expenses
- Legal work done before the business opened is a start-up or organizational cost, subject to the first-year election and amortization, and is reported in other expenses rather than line 17.
- Form 4562, form 4562, carried to schedule c line 13
- Legal fees tied to buying an asset or defending its title are added to that asset's basis and recovered through depreciation or amortization.
- not deductible, not deductible
- Legal work on a personal matter is not deductible, even when your lawyer sends one invoice covering both.
Examples that belong on line 17
- A $750 fee to draft a master services agreement for new clients
- $300 for a lawyer to review a customer's amended purchase order
- A $1,200 engagement to update your terms of service and privacy policy
- $400 to send a demand letter to a late-paying customer
- A $250 consultation on whether a worker is a contractor or an employee
What does not belong here
- LLC formation fees, which are organizational costs
- Legal fees on buying a building, which go into the building's basis
- A personal matter such as a will or a divorce
- Legal work on acquiring a long lease, which is amortized over the lease term
What to keep
Keep the engagement letter and invoices with enough narrative to show what the work was about. The narrative is what separates an ordinary expense from a capitalized one.
Other expenses on line 17
| Expense | Line |
|---|---|
| a registered agent's annual fee | Schedule C, Line 17 |
| a tax prep fee covering the 1040 and Schedule C | Schedule C, Line 17 |
| an appraiser's fee | Schedule C, Line 17 |
| bookkeeper and accountant fees | Schedule C, Line 17 |
| business consultant fees | Schedule C, Line 17 |
| fractional CFO fees | Schedule C, Line 17 |
| legal fees to sue a customer | Schedule C, Line 17 |
| tax preparation fees | Schedule C, Line 17 |
Related lookups
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Sources
This page explains how Schedule C lines work. It is general information, not tax advice for your situation. If an expense is large or the answer turns on a fact about your business, confirm it with your tax preparer.
Looking for a different expense? The full Schedule C line lookup has every line from 8 to 27 with the expenses that belong on each, and Schedule C expense categories walks the whole form in order.
Stop looking up lines one at a time. ClaryBook totals your year into an IRS Schedule C worksheet in form order, Part I and Part II line by line, so legal fees for drafting a client contract lands on Line 17 without you sorting it.
Start for free