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ksmith3501
New Member

Was awarded a legal settlement covering most of my expenses and losses related to a lawsuit, excluding legal fees. Can I deduct these and if so where do I enter the amt

 
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GiseleD
Expert Alumni

Was awarded a legal settlement covering most of my expenses and losses related to a lawsuit, excluding legal fees. Can I deduct these and if so where do I enter the amt

For tax years 2018 through 2025, most legal fees and court costs cannot be deducted. These costs cannot be netted against the settlement. Here's what CAN be deducted:

 

1) You may be able to deduct, as an adjustment to income on your Schedule 1 (Form 1040 or 1040-SR) or Form 1040-NR, attorney fees and court costs for actions settled or decided after October 22, 2004, involving a claim of unlawful discrimination, a claim against the U.S. Government, or a claim made under section 1862(b)(3)(A) of the Social Security Act. However, the amount you can deduct on your Schedule 1 (Form 1040 or 1040-SR), or Form 1040-NR, is limited to the amount of the judgment or settlement you are including in income for the tax year. 

 

2) You can deduct legal expenses that are related to doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business. You can also deduct expenses of resolving tax issues relating to profit or loss from business (Schedule C), rentals or royalties (Schedule E), or farm income and expenses (Schedule F) on the appropriate schedule.

 

Expenses for resolving nonbusiness tax issues are miscellaneous itemized deductions and are no longer deductible.

 

These will be entered in different areas of the return depending on the type of legal fee. Do your legal fees fall into one of the above categories? If so, please provide details so we can advise you further on how to enter them.

 

Learn more here: Publication 529, Miscellaneous Deductions.

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3 Replies
GiseleD
Expert Alumni

Was awarded a legal settlement covering most of my expenses and losses related to a lawsuit, excluding legal fees. Can I deduct these and if so where do I enter the amt

For tax years 2018 through 2025, most legal fees and court costs cannot be deducted. These costs cannot be netted against the settlement. Here's what CAN be deducted:

 

1) You may be able to deduct, as an adjustment to income on your Schedule 1 (Form 1040 or 1040-SR) or Form 1040-NR, attorney fees and court costs for actions settled or decided after October 22, 2004, involving a claim of unlawful discrimination, a claim against the U.S. Government, or a claim made under section 1862(b)(3)(A) of the Social Security Act. However, the amount you can deduct on your Schedule 1 (Form 1040 or 1040-SR), or Form 1040-NR, is limited to the amount of the judgment or settlement you are including in income for the tax year. 

 

2) You can deduct legal expenses that are related to doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business. You can also deduct expenses of resolving tax issues relating to profit or loss from business (Schedule C), rentals or royalties (Schedule E), or farm income and expenses (Schedule F) on the appropriate schedule.

 

Expenses for resolving nonbusiness tax issues are miscellaneous itemized deductions and are no longer deductible.

 

These will be entered in different areas of the return depending on the type of legal fee. Do your legal fees fall into one of the above categories? If so, please provide details so we can advise you further on how to enter them.

 

Learn more here: Publication 529, Miscellaneous Deductions.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

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moutaintai
Returning Member

Was awarded a legal settlement covering most of my expenses and losses related to a lawsuit, excluding legal fees. Can I deduct these and if so where do I enter the amt

Hi, I have 1099 MISC which is employment related legal settlement, on box3 : $50000, but $30000 is legal fee. Where I can input the deduct in the turbo tax?

Thanks,

npierson7
Level 1

Was awarded a legal settlement covering most of my expenses and losses related to a lawsuit, excluding legal fees. Can I deduct these and if so where do I enter the amt

Unfortunately, you cannot deduct your legal fee for settlement.  According to the IRS, non-deductible legal fees include:

  • Personal legal expenses, including:
    • Child custody
    • Purchasing real estate
    • Breach of promise to marry
    • Civil or criminal charges related to personal relationships
    • Personal injury
    • Title preparation
    • Estate planning such as will preparation
    • Property claims or settlements                                                                                                                    
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