Legal fees paid on an award, judgment or settlement
A legal award, judgment or settlement for personal physical injuries or physical sickness is tax exempt. The related legal fees are not deductible since that income is not taxable.
Legal fees related to an award, judgement or settlement from a claim of unlawful discrimination are deducted as an adjustment to income on the 1040 form, reducing adjusted gross income.
Legal fees related to all other taxable awards, judgements or settlements, which were previously allowable as miscellaneous expenses on Schedule A, are no longer deductible on the 1040. For example, if you are awarded a settlement of $100,000 and your attorney receives $30,000 of it, you must pay federal income tax on the entire $100,000 even though you’re only receiving $70,000.