Can settlement payment to lawyer be deducted? |
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peted
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Can settlement payment to lawyer be deducted? |
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So My wife was awarded some money from a wrongful termination complaint and we paid approx 30% to our attorney. I have heard that this money can be deducted on our return. This occured in 2005 so if we are able to do this...what is the process...and supplemental return? Thanks
Pete
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Thu May 22, 2008 8:38 pm |
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BlankenshipFP
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Well, I'm not a botanist either, but Coaster has it right... if the award was taxable income, the fees paid to the attorney are likely deductible. File a 1040X for the year in question...
Jim Blankenship, CFP�, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Fri May 23, 2008 2:31 pm |
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peted
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Deducting lawyer fees from wrongful term settlement |
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Spoke with my tax guy on this and stated the following. I'd like a 2nd opinion if possibe. Thanks
"My intial conclusion was based on the June 21, 2007 attorney letter whereby it stated that the total amount paid to you was $130,725, and I had assumed the attorney fees of $59,275 was paid out of the $130k.
Therefore, under IRC Sec 62(e) (unlawful discrimination suit) any legal costs are allowed as an above the line deduction. However, upon review of the settlement papers, part 3 - Payment by Employers - it states that the award was for $190,000 and legal fees were paid from the 190k with the balance of $130,725 paid to your wife. The 2005 tax return discloses the discrimination award of $85,725, since this amount is primarily net of legal fees, we are not required to file an amended 2005 tax return."
Pete
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Tue Aug 12, 2008 9:24 pm |
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peted
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We reported the 130K not the 190K (i.e. we received a 1099 in the amount of 130K) so I guess we can't claim his fees in this case
Of the 130K we claimed (successfully) that approx 50K was exempt from taxes due to personal injury (other factors in play here) hence our claim of only 85K...
Pete
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Wed Aug 13, 2008 3:31 pm |
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BlankenshipFP
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quote: Originally posted by peted We reported the 130K not the 190K (i.e. we received a 1099 in the amount of 130K) so I guess we can't claim his fees in this case
Of the 130K we claimed (successfully) that approx 50K was exempt from taxes due to personal injury (other factors in play here) hence our claim of only 85K...
Pete
Well, pete, you did claim (deduct) his fees. Otherwise you would have claimed the entire judgement of 190k, in which case you would deduct the attorney's fees and the personal injury component, coming up with the taxable amount of ~85k. It can't be done both ways - taking the net (130k) and then deducting the fees again.
Jim Blankenship, CFP�, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Thu Aug 14, 2008 12:47 pm |
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BlankenshipFP
Money Talk Advisor
Cash: $ 79.56
Posts: 390
Joined: 05 Oct 2004
Location: Illinois |
Right - the portion of the settlement that applies to personal injury (not lost wages) would be untaxed... therefore, the claimed income of ~$85k would be correct.
Unless I'm missing something in this equation.
Jim Blankenship, CFP�, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Fri Aug 15, 2008 3:00 pm |
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