Death and taxes are the proverbial certainties in life. In my debt settlement practice, I always counsel prospective clients on the potential tax ramifications for negotiating a reduction in their unsecured credit card debt. Thanks to a Tax Court decision, I am pleased to share with my clients that fees paid to my firm for debt settlement are tax deductible. You can see the full decision here:
TRAN v. COMMISSIONER OF INTERNAL REVENUE
Mr. Tran paid fees to a debt settlement company to reduce his credit card debt. The Court reasoned that the fees paid for were the purpose of getting a reduction of Mr. Tran’s credit card debt. The fees were not deemed excessive, out of the ordinary, or unnecessary. Further, the fees charged were directly related to the settlement of Mr. Tran’s credit card debts. So now you can settle your debt AND deduct the attorney’s fees. It’s a win-win. I do recommend working with a tax professional in the years that debts are settled to ensure that the Cancellation of Debt (income) is properly accounted for and hopefully excluded as income on your tax returns.