- quote -

There's a controversary in California over the proposed 75%
tax on the punative parts of lawsuit payouts. It's
mentioned that nine states have some amount of a punative
tax.

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Thank you for everyone's excellent suggestions. Certainly,
once the lawsuit money comes in, I can then afford to hire a
cracker accountant to sort all this out.

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"Arthur L. Rubin" <ronnirubin[at]sprintmail.com> wrote:
- quote -

You are correct, the general rule is legal fees are not
deductible, however, certain personal legal fees are
deductible under section 212.

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Arthur L. Rubin wrote:
- quote -

Right. But is it a Schedule C deduction or a Schedule A
deduction? That could make a big difference. And if there
is an issue of alternative minimum tax, the fees may not be
deductible at all.

Stu

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chiefthracian wrote:

- quote -

At least in some Federal circuits, whether or not
you actually RECEIVE the gross settlement is irrelevant
to it being taxable. If the gross settlement would be
taxable, it is included in gross income (and modified
AGI, which affects taxation of your SS benefits), and
the legal fees are deducted on Schedule A.

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Harry wrote:

- quote -

Wrong. If the settlement or court-ordered payment is
(or would be) taxable, the legal fees are deductible.
The character of the claim is irrelevant except as
it affects the taxablility of the settlement.

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"Barney Bird" <barney_bird[at]msn.com> wrote:
- quote -

Personal legal fees are not deductible.Legal expenses are
only deductible if the origin and character of the claim are
directly related to a trade or business, income-producing
activity, or determination, collection, or refund of a tax.

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chiefthracian wrote:
- quote -

What about the 40K? You are willing to pay legal fees for
that. Why not pay something for tax advice. As they say the
lawyer who represents himself has a fool for a client.

--
Frederick E. Jorden http://Tax-Accounting-Payroll.com
7825 Midlothian Tpk - 207 Richmond, VA 23235-5247
EMAIL knowtax[at]bigfoot.com
(804) 320-6210 FAX (804) 320-6211

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smithff33[at]aol.com (Herb Smith) wrote:

- quote -

Okay, I gotcha. Actually, legal fees will be deducted BEFORE
I receive my lump sum ($40,000). So add with my SS, I will
then calculate my taxes. I don't see where I'd be able to
deduct anything. Thanks for your help, Herb.

--
Zeke Krahlin, chiefthracian -ICQ#: 277447464
Lavender-Velvet Revolution
http://www.gay-bible.org

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"Paul" <taxman[at]negia.net> wrote:

- quote -

Okay, thank you very much for that.

- quote -

The attorney already said he can't advise me on taxes. He's
not MY attorney, but our GROUP's attorney. I cannot afford
any consultant, as I'm very poor, less than $11.000/yr. soc.
sec. and nothing else.

So I will research this thoroughly, on my own.

--
Zeke Krahlin, chiefthracian -ICQ#: 277447464
Lavender-Velvet Revolution
http://www.gay-bible.org

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"chiefthracian" <zkrahlin[at]myrealbox.com> wrote:

- quote -

Assuming the expected settlement does not represent
compensation for a personal, physical injury, the gross
compensation awarded to you, including attorneys' fees, will
be taxable. As Herb notes above, you will be able to take a
miscellaneous itemized deduction on Schedule A, subject to
the 2% of adjusted gross income (AGI) floor, for the
attorneys' fees. Depending on other variables, the
attorneys' fees deduction could trigger an alternative
minimum tax (AMT) liability.

The U.S. Supreme Court has two cases on its docket involving
the taxation of contingent attorneys' fees. Those casese
are:

Commissioner of Internal Revenue v. Banks (Docket # 03-892)

Commissioner of Internal Revenue v. Banaitis (Docket # 03-907)

These cases are expected to be consolidated and decided
sometime around the end of this calendar year.

I'm not familiar with the Banaitis case, but the Banks case
comes to the Court from the 6th Circuit which held that
Banks is taxed only on the net settlement after attorneys'
fees. If the Court sustains the 6th Circuit's position, you
may only have to include the net settlement in your income
this year. If the Court reverses the 6th Circuit, as I said
above, you will have to report the entire settlement and
then take a deduction for the atttorneys' fees.

Keep your eye on the outcome of these cases as your 2004 tax
liability will not be unaffected by the Court's decision.

Barney Byrd

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chiefthracian <zkrahlin[at]myrealbox.com> wrote:

- quote -

Based on this sketchy information, the GROSS settlement will
be fully taxable to you. The legal fees can be claimed as an
itemized deduction on your Schedule A. This will likely make
some or all of your SS benefit to be taxable.

Don't forget state taxes also.

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chiefthracian <zkrahlin[at]myrealbox.com> wrote:

- quote -

Ooops. sounds like I'm just plain bragging!

I meant to end that article with:

"What should I expect to pay in taxes? Is there an online
resource where I can figure this out in preparation for next
year's filing? TIA"

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"chiefthracian" <zkrahlin[at]myrealbox.com> wrote

- quote -

The setlement proceeds (gross) can be taxable, non-taxable,
or partly taxable depending on what the basis of the suit,
as well as other factors, are.

Seek competent legal advice from, well your lawyer among
others, a CPA or EA familiar with legal settlements. In
fact, your attorney may have someone onretainer that can
advise you on the issue.

--
Paul A. Thomas, CPA
taxman at negia.net

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I'm presently embroiled in a lawsuit, where the payment to
me for compensation will be around $40,000 (after all legal
fees are paid).

I am not employed, living on social security, with no other
income. I live in California.

TIA

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