I paid attorney fees to win my appeal and received lump sum social security disability pay. I need to pay income tax on it. Where do I deduct attorney fee?

[HelenC12]

For federal income tax purposes, legal fees are no longer deductible. The Tax Cut and Jobs Act of 2018, disallowed miscellaneous itemized deductions for the period 2018-2025.  That includes personal legal fees, including legal fees incurred in the production of taxable income. i.e. Social Security.

However, you may include them and TurboTax will transfer the amount as a deduction on your state income tax return, if your state allows it. 

To enter:

1. Type legal expenses, deduction in the search or find box, click search.
2. Click on Jump to legal expenses, deduction.
3. Continue with the onscreen interview until complete.

In general, only legal fees that are related to your business, including rental properties, can be deductions. This is true even if you didn't win the legal case in which the legal fees were incurred.

•  Can I Deduct Legal Fees on My Taxes

[GDSEB]

This publication seems to indicate some income from physical sickness is not taxable.     https://www.irs.gov/government-entities/tax-implications-of-settlements-and-judgments

Also in the Federal Code

https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section104&num=0&edition=prelim

How about legal fees paid to get ERISA benefit via employer disability insurance policy?    While Turbotax says all attorney fee expenses are not deductible,  the IRS info above and these articles indicate to the contrary.

Any idea while these authors are incorrect?    I've found two different IRS publications that conflict with themselves in many cases. 

Also this article indicates possibility of attorney fee deduction, counter to your indications

https://www.forbes.com/sites/robertwood/2022/02/17/how-to-write-off-legal-fees-on-your-taxes/?sh=6aa...

https://www.whiteman-law.com/tax-deduction-of-attorney-fees-in-employee-bene[product key removed]ns-...

https://www.americanbar.org/groups/business_law/publications/blt/2022/04/write-off-legal-fees/

Are you 100.00% sure?   Sometimes IRS pubs don't match US Govt. Registrar tax law.

[DianeW777]

Yes. The law has changed. Legal fees used to be a deduction under Miscellaneous Expenses when using itemized deductions and it was limited to the amount that exceeded 2% of adjusted gross income (AGI).  Since the Tax Cuts and Jobs Act (TCJA) enactment this has been eliminated for tax years 2018-2025. It remains to be seen if it will automatically revert back in 2026. This may depend on what the legal fees are actually for.  As stated by our tax expert @HelenC12.

This was not a discrimination lawsuit and therefore the legal fees are not deductible.

[GDSEB]

This writer from

Forbes indicates “discrimination “

can include s broader range of

deductions of legal

expenses.  @Helenc2  indicates in a separate post that legal expenses are deductible.

https://www.forbes.com/sites/robertwood/2022/02/17/how-to-write-off-legal-fees-on-your-taxes/?sh=1f5...

This IRS pub (revision

date 11/2022)  indicates fees are deductible.

https://www.irs.gov/pub/irs-pdf/p4345.pdf

[DianeW777]

It's a stretch.  The law is very clear which would create a difficult situation under audit. Discrimination is not considered when trying to obtain social security disability (SSDI) and everyone goes through a similar process due to the nature of each case.

[GDSEB]

The tax law is hosed,  making you pay for a disability income settlement in which legal fees were deducted yet I am forced to pay taxes on income that literally never made it into my hands.

[Jjsbaby2]

It does not make sense that you have to pay for an attorney whose income you have to claim?  Basically aren’t you claiming his income and having to pay tax on it?  Does the attorney have to claim this as income too?  This seems very unfair and there should be a way to at least not have to claim his money as your income.  Social Security pays the attorney before they pay you correct?  I can understand that you are paying him for his services but since you do not even see that money I would think it would be handled differently.  Did you ever find a work around for this?  How did you handle it?  

[Hal_Al]

Q. Does the attorney have to claim this as income too?

A. Yes.

Q. Did you ever find a work around for this?  How did you handle it?

A. This is no workaround. That's the way it is. That's the rules.

The rationale  is this: you effectively received all the money, so it is all taxable to you.  You then spent some of the money on a lawyer, so that part is also taxable to him. 

Q. This seems very unfair and there should be a way to at least not have to claim his money as your income. 

A. I agree, but apparently our congress members don't.