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Level 1

Solved

QUESTION ON LAWYER FEES

Forum|Forum|7 years ago
June 6, 2019
2 replies
50 views

lawsuit in my favor. settlement sent to lawyers. lawyers deduct 40% fee and send me a check. Company sends me 1099 for total amount. How do I deduct these lawyer fees?

Does not seem right that lawyers get away with no tax on the 40$ I had to pay them.

TurboTax Deluxe Windows

Best answer by Hal_Al

The lawyers pay tax on what they keep.

For tax purposes, you are considered to have received the entire amount. But you may deduct the lawyers fees you "paid". Unfortunately the lawyer fees are only deductible as an itemized deduction, subject to the 2% of AGI threshold.

Reference: https://www.lawyers.com/legal-info/taxation/tax-audits/are-attorneys-fees-tax-deductible.html

Answer

Level 15

The lawyers pay tax on what they keep.

For tax purposes, you are considered to have received the entire amount. But you may deduct the lawyers fees you "paid". Unfortunately the lawyer fees are only deductible as an itemized deduction, subject to the 2% of AGI threshold.

Reference: https://www.lawyers.com/legal-info/taxation/tax-audits/are-attorneys-fees-tax-deductible.html

Level 10

The lawyers will pay tax on the money they received.

You might or might not be able to deduct the costs of litigation.

It depends upon what the lawsuit was about. You can deduct costs for business claims, some discrimination claims, etc.

Also settlements for physical injuries or sicknesses are not taxable income at all.

This is a *very* complicated area. You should probably seek the advice of a CPA, tax attorney, or enrolled agent who is knowledgeable about this.

This is a article on the subject. https://www.nolo.com/legal-encyclopedia/question-won-lawsuit-pay-tax-award-28353.html

This is another article about some of the issues, but it is very technical. It might help you understand some of the issues. http://www.acc.com/legalresources/quickcounsel/litigation-damages-and-settlements.cfm

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