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Want to deduct legal expenses? Make sure they meet these three requirements first

by , 18 August 2014
Experts behind the Practical Tax Loose Leaf Service say one of the biggest challenges companies face is not knowing which expenses they can deduct from their income for the financial year.

They say as a result, companies end up deducting the wrong expenses and getting SARS penalties or worse, criminal records.

We don't want you to make the same mistake especially when it comes to legal expenses.

Take a look at the three requirements legal expenses must meet before you deduct them so you'll get your deductions right and avoid penalties.

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If you incur these seven legal expenses in the production of income, you can deduct them:

  • Fees for the services of legal practitioners;

  • Expenses incurred in procuring evidence or expert advice;

  • Court fees;

  • Witness fees and expenses;

  • Taxing fees;

  • The fees and expenses of sheriffs or messengers of the court; and

  • Other expenses of litigation, which are of an essentially similar nature to any of the fees and expenses mentioned.

So what's the catch?

Before you deduct these seven legal expenses you must ensure they meet these three requirements 

According to the experts behind the Practical Tax Loose Leaf Service, you must make sure the deduction is limited to the amount of the legal expenses that:

#1: Isn't capital in nature;

#2: You don't incur for any claim made against you for the payment of damages or compensation; and

#3: You don't incur the expense for any claim you make for the payment to you for any amount that doesn't constitute income in your hands.

There you have it: Deducting legal expenses isn't straight forward. You must make sure they meet these three requirements before you make your claim.

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