if the suit is not related to the plaintiff's trade or business, there may be no write-off for legal fees or costs. That means you are taxed on 100% of your recovery. Examples of settlements facing tax on 100% include recoveries:
From a website for invasion of privacy or defamation;
From a stock broker or financial adviser for bad investment advice, unless you can capitalize your legal fees;
From your ex-spouse for claims related to your divorce or children;
From a neighbor for trespassing, encroachment, etc;
From the police for wrongful arrest or imprisonment;
From anyone for intentional infliction of emotional distress;
thus the taxes on the $8000 could exceed the $1000 you netted. did the attorney explain this to you?
