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Visitor II

Lawsuit settlement - legal fees - taxes



I am trying to figure out at what point I should go to a traditional CPA/ES or if the turbo tax with the added services for the extra fees, which allow me to discuss with a CPA would suffice.

Long story short, I was wrongfully terminated and received a decent amount from the litigation. The breakdowns look like this:

RECOVERY: $ XXX,XXX.XX (total settled amount)

(Includes Gross Wages of $XX,000.00)


LESS: 40% Attorneys’ Fees - $XX,XXX.00


SUBTOTAL: $ XXX,000.00


LESS: Costs Advanced by Attorney - $ X,XXX.XX


Payroll Deductions - $XX,XXX.XX (taken from gross wages).




HELD IN TRUST: For Future Costs, if any - $ XXX.XX


NET TO CLIENT: $ XXX,XXX.XX (Amount I will receive after attorney fees, prior to any possible taxation).

Apologies but I cannot list the actual dollar amounts due to agreement. There is no NDA on the case however.

Two checks are being disbursed to me. One is coming from my old employer for the XX,XXX.XX amount and one from my attorney in the XXX,XXX.XX amount.

I just want to make sure, at minimum, I know the correct questions to ask, if I choose to go to a CPA outside of turbo tax.

Can the attorney fees be written off to reduce my tax liability? Are taxes owed on the full amount from the Recovery or just from the Gross Wages (which was taken out in the payroll deduction line). Should I get a head of this by seeking out help now or just wait until the end of the year. My wife and I do not need to use this money to live on so we do not plan on spending any time soon, but we want to wait until after the tax year so we know what is ours and what is Uncle Sams. I would be happy to elaborate more if it helps but I cannot talk about the actual dollar amounts. Assuming they are not needing anyways.


I ask in this area because prior to this year I was under the impression I was taxed on the full amount and could write off all attorney fees. I also have no problem going to a CPA to have this completed, I just wanted to make sure this wasn't a very simple input to turbotax and a CPA would cost me substantially more for minimal services.

Thank you,


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