@Dawn Y1 wrote:
My husband also received a W-2 and a 1099-MISC form with identical amounts from the lawyers handling a class action discrimination lawsuit. It was explained to him that the W-2 was for back wages and the 1099-MISC was for non-economic damages (pain and suffering). From what I have read online, I believe this is income and is taxable. The 1099-MISC included Attorney fees. TurboTax is insisting the 1099-MISC be associated with a sole proprietorship business and wants me to create a Schedule C. I have read that this is unnecessary but I don't know how to get TurboTax to understand that. I found in the IRS 2020 tax instructions for 1040/1040-SR, that I can deduct the lawyer fees as UDC on Schedule 1 up to the amount of the gross income received in the settlement. I believe the gross income would be the amount on the W-2 plus the amount on the 1099-MISC. Let me know if I have interpreted anything incorrectly.
Only discrimination lawsuits can deduct attorneys fees, but TurboTax does not support that, but it can be entered in the "forms mode" but only the CD/download version installed on a Mac or Windows computer has the forms mode.
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If this is an employment discrimination then legal fees are a "above the line" deduction that TurboTax does not support in the interview.
This deduction cannot be claimed using the online version.
It can only be entered in the forms mode in the CD/download desktop version directly on the 1040/ 1040SR Worksheet for Schedule 1 line 22.
in the smart worksheet line H enter the code UDC and the amount.
That will put it on the 1040 form line 10 as a deduction to income.
Per the IRS 1040 instructions page 94.
[quote]
Line 22
Include in the total on line 22 any of the following write-in adjustments. To find out if you can take the deduction, see the form or publication indicated. On the dotted line next to line 22, enter the amount of your deduction and identify it as indicated.
•Attorney fees and court costs for actions involving certain unlawful discrimination claims, but only to the ex-tent of gross income from such actions (see Pub. 525). Identify as “UDC.”
[end quote]
\https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
