I had to sue my former employer for sort term disability payments. We settled out of court and they paid me via a normal pay check for the amount of the settlement less the attorney's fees that were paid directly to the attorney. I have received a 1099-MISC for the amount of the payment made to the attorney. Can I deduct this as a business expense? I have to file a Form C to enter the 1099-MISC as business income, can't I therefore deduct the attorney fees as a cost against the wages and attorney fees paid? Title 26 USC 212 states; "In the case of an individual, there shall be allowed as a deduction all the ordinary an necessary expenses paid or incurred during the taxable year - (1) for the production or collection of income." Since I had to hire the attorney to produce the aforementioned income then the attorney's fee is deductible.
