Deducting 1099 misc funds

[m-shroyer-m]

An ex-employer owed me $10k. They refused to pay me and after a threat of a lawsuit they paid me $3.5k. It's 1099-Misc income. Is there a way to claim the $6.5k as a business loss?

[DianeW]

No.  The tax law for deductions is based on expenses that were used to produce the income that is taxed on the return. Since you never received the full amount you were never taxed on the money you didn't receive.  You can deduct any expenses that you had to pay that allowed you to collect the amount you did receive. 

And you can deduct those expenses directly against this income on the self employment schedule that is used to report the income from the Form 1099-MISC.

You can go directly to the area to review your information by following these steps.

TurboTax online version:

1. Sign into your account and select your current return.

2. Select  My Account on the top right and then select Tools

3. Select Topic Search (see attached image)

4. Search for business and select Go

5. Select Edit next to your business

6. Scroll to Business Expenses

TurboTax desktop version:

1. Search box in the upper right

2. Search for business, schedule c

3. Jump to business. schedule c

4. Continue to Edit your business

5. Scroll to Business Expenses