I am getting a settlement from a business over a suit but most of the settlement will go to the attorney to cover their fees incurred on contingency. If the 1099 reports the full settlement, will I have to pay taxes on the full amount or if not, how do I tell the IRS it is not all taxable. Otherwise, I could easily end up owing more in taxes than I get for my small portion.


1 Answer 1


You report it as an expense against the 1099 income when you do your taxes. You will only be taxed on the amount after the lawyers fees (but if it cost you more in lawyers fees than you recover in damages, the loss is not deductible). Be sure to keep documentation of the lawyers bill and the contract.

Compensatory damages are generally not taxable at all. You can see here for more information on that.

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