How Legal Work Can Actually Save Your Business on Taxes

Running a business isn’t just about increasing revenue; it’s also about smart spending and planning. One area many business owners overlook is the tax benefits of legal expenses. Strategic legal work can protect your business, strengthen your brand, and even reduce your taxable income.

Here’s everything you need to know:

1. Ordinary and Necessary Legal Expenses Are Deductible

The IRS allows businesses to deduct “ordinary and necessary” expenses under Internal Revenue Code (IRC) Section 162. Simply put, if the expense is common, accepted, and helpful for running your business, you can usually deduct it in the year it’s incurred.

Examples include:

• Drafting Terms of Use and Privacy Policies for your website or app

• Legal consultations for routine contracts or employment agreements

• Compliance advice or operational guidance from your attorney

💡 Practical Tip: Deducting these costs in the same year they’re incurred immediately reduces your taxable income, saving your business money now.

2. Legal Costs for Trademarks and Intellectual Property

Legal costs for creating or acquiring long-term assets like trademarks, patents, or copyrights, are treated differently. These expenses are considered capital expenditures and are amortized over 15 years under IRC Section 197.

What this means:

• Filing fees, attorney fees, and registration costs for trademarks, copyrights or patents cannot be deducted immediately, but they provide a steady tax deduction over 15 years.

• This amortization reduces taxable income each year while building and protecting your intellectual property.

Example:

• You spend $9,000 on legal and filing costs to register a trademark.

• Instead of a one-time deduction, you can deduct $600 per year over 15 years.

This allows your business to spread the tax benefit over time while securing exclusive rights to your brand.

3. Legal Costs for Enforcement and Litigation Are Usually Fully Deductible

Even though creating a trademark is capitalized, legal expenses incurred to enforce or defend that trademark are generally deductible immediately.

Examples include:

• Sending cease-and-desist letters

• Filing or defending trademark infringement lawsuits

💡 Why this matters: Immediate deductions reduce your taxable income in the year you spend money defending your business, helping your bottom line while you protect your intellectual property.

4. The Strategic Combination

By combining these approaches, businesses can maximize legal work as a tax-efficient strategy:

Type of Legal Work	Tax Treatment	Benefit
Routine contracts, terms of use, policies, and compliance	Deduct immediately	Reduce taxable income in the current year
Trademark/patent filings	Capitalize & amortize 15 years	Long-term deductions, IP protection
IP enforcement or litigation	Deduct immediately	Protect assets while reducing current taxes

This means your legal budget does double duty: it not only protects your business but also provides ongoing tax advantages.

5. Real-World Example: Year-End Planning

Imagine your business invests $10,000 in legal services this December:

• $3,000 for drafting website Terms of Use and Privacy Policy (deductible immediately)

• $7,000 for trademark registration (amortized over 15 years)

For the current year, you can deduct $3,000 immediately, reducing your taxable income and your taxes due. Over the next 15 years, you continue to deduct $466 per year from the trademark amortization, creating ongoing tax benefits.

💡 Tip: Planning legal work near the end of the fiscal year can maximize deductions for the current year while setting up long-term savings.

Investing in proper legal work doesn’t just protect your business and brand, it also optimizes your finances and tax position.

💡 Pro Tip: Always consult your tax advisor or accountant when planning legal expenses to ensure you capture all possible deductions and amortization strategies. Smart legal spending can save your business money now and for years to come.