Why sign in to the Community?

  • Submit a question
  • Check your notifications
Sign in to the Community or Sign in to TurboTax and start working on your taxes
Level 2
posted Mar 23, 2023 5:32:02 AM

IRS Allows Age Discrimination Legal Fees Adjustment to Income , but TT does not allow it

I realize this isn't a common situation, but nonetheless the IRS allows it (re: IRC S62(a)(21) below), but TT doesn't support it. 

 

How do I enter the legal fees associated with an Employment Related Age Discrimination Lawsuit settlement that was included in a 1099-MISC so that:

  1. a) it can be entered as an above the line "other adjustment" on Form 1040 Schedule 1, line Line 24z
  2. b) it is included in Schedule 1, line 25,
  3. c) it is reflected in the "Adjustments to Income" total on Schedule 1,  line 26? 

I.R.C. § 62(a)(20) Costs Involving Discrimination Suits, Etc. — 

Any deduction allowable under this chapter for attorney fees and court costs paid by, or on behalf of, the taxpayer in connection with any action involving a claim of unlawful discrimination (as defined in subsection (e)) or a claim of a violation of subchapter III of chapter 37 of title 31, United States Code, or a claim made under section 1862(b)(3)(A) of the Social Security Act (42 U.S.C. 1395y(b)(3)(A)). The preceding sentence shall not apply to any deduction in excess of the amount includible in the taxpayer's gross income for the taxable year on account of a judgment or settlement (whether by suit or agreement and whether as lump sum or periodic payments) resulting from such claim.

 

Internal Revenue Code Section 62(a)(20) 

...

Adjusted gross income defined.

(20) Costs involving discrimination suits, etc. Any deduction allowable under this chapter for attorney fees and court costs paid by, or on behalf of, the taxpayer in connection with any action involving a claim of unlawful discrimination (as defined in subsection (e)) or a claim of a violation of subchapter III of chapter 37 of title 31, United States Code or a claim made under section 1862(b)(3)(A) of the Social Security Act (42 U.S.C. 1395y(b)(3)(A)). The preceding sentence shall not apply to any deduction in excess of the amount includible in the taxpayer's gross income for the taxable year on account of a judgment or settlement (whether by suit or agreement and whether as lump sum or periodic payments) resulting from such claim.

 

0 3 1545
1 Best answer
Expert Alumni
Mar 23, 2023 5:54:40 AM

First, you would enter the 1099-MISC for the full amount of the settlement.

 

You may deduct the attorney's fees and create an 'above the line deduction' by following these steps:

 

  • Down the left side of the screen, click Federal.
  • Down the left side of the screen, click Wages & Income.
  • Click Show more to the right of Less Common Income.
  • To the right of Miscellaneous Income, 1099-A, 1099-C, click the Start / Revisit button.
  • To the right of Other reportable income, click the Start / Revisit button.
  • At the screen Other Taxable Income, enter a description “Attorney's fees” and the attorney's fees as a negative amount. 

The entry will be reported:

 

  • on line 8z of Schedule 1 of the Federal 1040 tax return, and 
  • on line 8 of the Federal 1040 tax return.

@GBM340 

3 Replies
Expert Alumni
Mar 23, 2023 5:54:40 AM

First, you would enter the 1099-MISC for the full amount of the settlement.

 

You may deduct the attorney's fees and create an 'above the line deduction' by following these steps:

 

  • Down the left side of the screen, click Federal.
  • Down the left side of the screen, click Wages & Income.
  • Click Show more to the right of Less Common Income.
  • To the right of Miscellaneous Income, 1099-A, 1099-C, click the Start / Revisit button.
  • To the right of Other reportable income, click the Start / Revisit button.
  • At the screen Other Taxable Income, enter a description “Attorney's fees” and the attorney's fees as a negative amount. 

The entry will be reported:

 

  • on line 8z of Schedule 1 of the Federal 1040 tax return, and 
  • on line 8 of the Federal 1040 tax return.

@GBM340 

Level 2
Mar 23, 2023 6:38:18 AM

Thanks for the quick reply!

 

While entering the attorney fees as a negative value under "Other Taxable Income" made the necessary adjustment, I must say that having to enter a valid deduction this way wasn't at all 'intuit'-ive.  

 

Thanks again for the quick response and detailed assistance.

Expert Alumni
Mar 23, 2023 7:01:02 AM

Unfortunately this is no longer an itemized deduction but is an authorized deduction for IRS purposes. This is the only way to offset the attorney fees and is acceptable with the IRS.