Final answer:
It is true that legal expenses can only be deducted if they are directly related to a trade or business, income-producing activity, or tax-related matters. Personal legal expenses are not deductible from one's taxable income.
Step-by-step explanation:
The statement that to deduct legal expenses, the taxpayer must show that the origin and character of the claim are directly related to a trade or business, an income-producing activity, or the determination, collection, or refund of a tax is true. Personal legal expenses are indeed not deductible from taxable income. When we talk about deductions from employee wages, such as withholding tax, PAYE, or PAYG, these typically cover prepayments for income tax and various insurances and do not extend to personal legal costs.
Taxes paid by employers on behalf of employees contribute to the social security system and other insurance programs and are distinct from the deductibility of legal expenses on individual tax filings. More broadly, the tax system aims to meet certain requirements: equity, simplicity, and efficiency, to ensure taxpayers understand and comply with tax obligations.
To calculate one's taxable income, the formula is: taxable income = adjusted gross income - (deductions and exemptions). The meticulous process of determining what precisely counts as a deduction can be complex, and legal expenses related to personal matters do not qualify.