Lawsuit Settlement Deductions

[randyharrison54]

I had to sue my former employer for sort term disability payments.  We settled out of court and they paid me via a normal pay check for the amount of the settlement less the attorney's fees that were paid directly to the attorney.  I have received a 1099-MISC for the amount of the payment made to the attorney.  Can I deduct this as a business expense? I have to file a Form C to enter the 1099-MISC as business income, can't I therefore deduct the attorney fees as a cost against the wages and attorney fees paid?  Title 26 USC 212 states; "In the case of an individual, there shall be allowed as a deduction all the ordinary an necessary expenses paid or incurred during the taxable year - (1) for the production or collection of income." Since I had to hire the attorney to produce the aforementioned income then the attorney's fee is deductible.

[macuser_22]

In the case on an employee, only decriminalization law suits can attorneys fees be deducted.   The Tax Cuts and Jobs Act passed by congress eliminated the deduction for 2018-2025.

Self employment income requiring a schedule C are on a 1099-NEC form.    A 1099-MISC is probably miscellaneous  income.

[randyharrison54]

Thanks....

[mmaza]

Enter above-the-line deduction for attorney's fees reported on 1099-MISC by entering a separate 1099-MISC reporting other reportable income with the amount of attorney's fees only listed as a negative number. For description, enter deductible attorney's fees.

This means for this income, you will have two 1099-MISCs entered into TurboTax. One reporting exact same information as reported to you on the 1099-MISC, and a second one reporting the deductible attorney's fees as a negative number. 

Do not enter them in a second time under deductions and credits, as this can cause them to be deducted from your state tax return twice.