I'm definitely going to file by mail, tracking USPS, including copies of the checks and a letter of explanation. I currently have the 1099-Misc in the regular area in Turbo Tax because it DOES provide the opportunity to describe what the 1099-Misc is for. I put the taxable amount in Box 3 (which makes it different from the physical 1099) and put this in the description:
"Lawsuit payment - property $XXXXX and emotional distress $YYYYY" - with the emotional distress portion in Box 3.
Will that work, or would it be better to delete the 1099 entirely and enter it like you suggested in Other Income? Your suggestion might be better since I'm a little concerned about changing what is reported on the physical 1099 like in my current method, but I note that when I go to that "Other Miscellaneous Income" area it says "Do not enter 1099-Misc here". Or could I enter the 1099 for the full amount in the regular income area identical to the physical one and then do a negative entry in Other Miscellaneous Income backing out the non-taxable portion with a detailed description? I just checked and Turbo Tax WILL let me do a negative entry there. I think I'm leaning towards this negative Other Miscellaneous Income method because it allows me to enter the 1099 identical to the physical document in the appropriate area and then adjust the taxable portion separately in the Other Miscellaneous Income area.
Note that I also have a 1099-Misc for our trust (the property portion of the settlement is split three ways between my wife and I as individuals and our Trust) which is entirely non-taxable, but Turbo Tax wants 1099s to be for individuals only; it won't let me enter it as being for both of us. I'm thinking for that one I won't enter it anywhere and instead will include a copy of the check made out to the trust and describe everything in detail in the letter?
