My situation is this. An attorney was used in a disability claim against an insurance Co. . The company settled for... lets say 100 dollars. The attorney took 45 dollars right of the top and we received the 54 dollar balance. Now can the 45 dollars be a tax deduction? Or are we responsible for tax on the whole "100" No income statements were received by us during this, so it is unclear.



Thanks,
Morrowrj

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Originally Posted by Morrowrj

My situation is this. An attorney was used in a disability claim against an insurance Co. . The company settled for... lets say 100 dollars. The attorney took 45 dollars right of the top and we received the 54 dollar balance. Now can the 45 dollars be a tax deduction? or are we responsible for tax on the whole "100" No income statements were received by us during this, so it is unclear.



Thanks,
Morrowrj

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It all depends on how your settlement was worded. Is all of the $$ for punitive damages or actual or medical? Legal expenses are only deductible when they are in direct coalition to protecting your income or income producing property. It all depends on how your settlement was worded as to IF that income is even taxable. If it is not taxable, then you have no expenses to offset on income that is not even taxable.

If the settlement is taxable income, the attorney fees can be deducted as a miscellaneous deduction, which is an itemized deduction subject to a 2% AGI floor.

If the settlement is NOT taxable, then the attorney's are NOT tax deductible.

Yes the settlement is taxable. Now I read the Schedule A & B instructions looking for where I could claim the attorneys fees and didn't see it. You are saying line 27 Misc. deductions is correct ?


Thanks for your help!
Morrowrj

Yes, it is a Miscellaneous deduction.