QUESTION
How do I report a legal settlement on my tax return?
Asked on Mar 05th, 2013 on Taxation - California
More details to this question:
I was involved in litigation with an insurance company over a "vanishing premium" life insurance policy. Part of the settlement required me to surrender the policy (I received $190k of which $48k was taxable and I received a 1099 for this) I was received a settlement of $120k net after attorney fees, etc. I never received a 1099 for this $120k. My question - do I report the $120k for which I did not get a 1099? Some have said yes - some have said no do not need to report it? What say you? Thank you.
2 ANSWERS
Appellate Attorney serving Grosse Pointe Farms, MI
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Musilli Brennan Associates, PLLC
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You should see a tax attorney or a tax accountant with all of the details in order to get a valid and reasoned opinion.
Answered on Mar 07th, 2013 at 5:59 AM
Taxation Law Attorney serving Glendale, CA
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Irsfeld, Irsfeld & Younger LLP
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It sounds like you paid (probably over a period of years) $142K in premiums. Then you got $190K; so the net income was $48K. It sounds like $70K went for attorney fees. You get an itemized deduction (on Schedule A)for the portion that was to produce income (48/190=25.3%R, or $17,684. It is possible that I am misreading your info. Perhaps you only paid in $72K and got a net of $120K, so your profit is $48K. In that case, since the atty fees are already removed, you do not also get an itemized deduction.
Answered on Mar 07th, 2013 at 5:58 AM