Occasionally individuals will incur legal fees to collect Social Security benefits. Legal expenses, including legal fees and court costs, are deductible when incurred in the production or collection of taxable income.
However, not all of the Social Security benefits are taxable so the legal fees paid to collect those benefits are deductible only to the extent the fees are allocable to the portion of the Social Security benefits included in gross income (Rev Ruling 87-102).
Thus for example, if only 50% of the Social Security income received is taxable, then only 50% of the legal expenses would be deductible (Andrews, Neil, (1992) TC Memo 1992-668) or if 85% of the Social Security is taxable, then only 85% of the legal expenses would be deductible (Dela Cruz, Virgilio, (2001) TC Summary Opinion 2001-154).
Eligible legal expenses are included as a miscellaneous itemized deduction on Schedule A and when added to the taxpayer’s other miscellaneous itemized deductions are deductible to the extent total miscellaneous expenses exceed 2% of the taxpayer’s adjusted gross income.