New Tax Code: Legal Fees Can't Be Deducted On Lawsuit Settlements

From Forbes.com

Many plaintiffs will face higher taxes on lawsuit settlements under the recently passed tax reform law. Some will be taxed on their gross recoveries, with no deduction for attorney fees even if their lawyer takes 40% off the top. In a $100,000 case, that means paying tax on $100,000, even if $40,000 goes to the lawyer. The new law should generally not impact qualified personal physical injury cases, where the entire recovery is tax free. It also should generally not impact plaintiffs who bring claims against their employers. They are still allowed an above the line deduction for legal fees (although there are new wrinkles in sexual harassment cases).

For most other types of claims, if the suit is not related to the plaintiff's trade or business, there may be no write-off for legal fees or costs. That means you are taxed on 100% of your recovery.

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