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Are legal fees tax deductible? Do this to ensure a legal battle doesn't land your company in the red

by , 29 April 2014
Legal fees are a huge expense and can easily run into the hundreds of thousands. You need to avoid getting your business involved in any legal disputes for this very reason. But that's not always possible. Here's what you need to know about your legal battles and tax so a nasty dispute doesn't land you in the red.

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Are legal fees tax deductible?

According to Forbes.com, your business legal fees are 100% tax deductible
 
It's important to recognise the difference between business and personal legal matters. For example legal fees for getting divorced aren't tax deductable. But if, for example, your company is sued then SARS can deduct those legal fees. 
 
These are fully deduction as well which means no limitation as long as you are actually in business. This means that your legal battle won't land you in the red. 
 
Don't forget though that whatever you win in that lawsuit may be taxed. This is because it's seen as income into the business. 
 
So how can you get the best out of these deductions?
 
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8 ways to LEGALLY beat the taxman
 
There are a few CGT loopholes that can save you thousands of Rands every single year and, in some cases, let you off the CGT hook completely… 
 
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Make the most out of these deductions

You should include the expense even if you haven't paid it yet to make the most out of its deduction. We've explained that the expenses that you've incurred, don't have to have been paid yet. 
 
That means, if you're involved in a legal battle in the next few months but you're doing tax returns now, you can still include the fees for a deduction. 
 
To manage these tax deductable expenses you need to make sure you keep all the records. You must have proof that there'll be legal fees paid in a few months. 
 
You should consider using SARS efiling to help you keep track of what deductions you've filed for. This way SARS won't think you're asking for business tax deductions that you don't qualify for. 
 
So remember these deductable expenses so that you're business legal issues don't land you in debt. 
 

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