I received money from a lawsuit settlement. Turbotax will not let me file taxes without information in the schedule c? I am not self employed. How do I get around this?

Forum|Forum|5 years ago
February 27, 2021
2 replies
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I already spoke with a representative Friday evening that tried a few different troubleshooting options to see if I could file taxes but none of it worked.

I spoke with a representative Saturday morning that thought I may have to file a schedule c and went through information in the self employed section which seemed incorrect.

I now have my question posted here hoping to get an answer as to why I need a schedule c or what information needs to be in a schedule c. On the 1099-MISC, box 3 and 10 (Box 10 - Gross proceeds paid to an attorney) are filled out. Since box 10 has information, Turbotax wants/needs information for a schedule c. Is this supposed to be the attorney who handled the legal case? That is the only thing I can think of as far as self employment.

TurboTax Deluxe Online

Best answer by ToddL99

ToddL99 it involves incorrect/improper wages for my current job and employer. The software is hung up on a loop in box 10 for attorney fees. My 1099-MISC has an amount in box 10 and because there is an amount there it's saying there needs to be information for a schedule c. I am now wondering if this is supposed to be the attorney's information that handled the case?

It would certainly appear that this 1099-MISC is reporting payments made to the attorney who handled your case. Check the Payer's FEIN and Recipient's FEIN/SSN to see if this form was sent to you in error.

If the payment was reported as being made to you, then contact the Payer for an explanation and issuance of a corrected 1099-MISC with "0" in Box 10.

Unless you are an attorney, you should not have received a 1099-MISC showing payments for attorney's fees. The only exception would be if the 1099-MISC was issued on your behalf (you would be listed as Payer) reporting payments made to an attorney (Attorney's SSN/FEIN listed as Recipient).

Under IRC Section 6045(f), report in box 10 (of Form 1099-MISC) payments that:

Are made to an attorney in the course of your trade or business in connection with legal services, but not for the attorney’s services, for example, as in a settlement agreement;
Total $600 or more; and
Are not reportable by you in box 1 of Form 1099-NEC.

ColeenD3

What type of tax settlement? Was it for past wages?

In general, to enter other income, follow the steps below, but be careful that this is not subject to SE tax.

You can add it as other income

Wages & Income
I'll choose what I work on
Less Common Income select Start (or Update) for
Miscellaneous Income.
Other reportable income and you can enter your own description(s) and amount(s).

retzmacher_51Author

It was from incorrect/improper pay through a certain date range

retzmacher_51Author

I have a 1099-MISC form for it and it has information in box 3 and box 10.

Right now I am in the 'Other taxable income' section (which is right after reportable income) and there is a specific note that says "Do not enter income reported on Form 1099-MISC"

I first tried reporting it in
-Other Common Income
-1099-MISC
Recording the information in box 3 and box 10 appropriately but because there is information in box 10 it wants a schedule c.

Someone else I spoke with today told me I may need to file a schedule c and went through the self employed 1099-MISC with me. I am not a tax professional but that didn't seem correct.

The only options that seem correct are either using
-Other Common Income
OR
-Less Common Income as suggested above

However, in Less Common Income it specifically says not to use something on a 1099-MISC. I just don't understand why it's asking for a schedule c for box 10 on the 1099-MISC when I am not self employed under the 'Other Common Income' section.

pricefam31

There is no way around this that I can see. I will need to print out all the IRS forms and fill them out myself (grrrr...).

I didn't have a lawsuit settlement, but did pay substantial legal fees for a disability denial reversal. I have spent hours and hours and hours in TurboTax trying every conceivable alternative to get turbotax to consider the legal fees as a deduction. TurboTax flat out refuses to consider the valid deduction and does not even have the ability to ask me the right questions, such as whether the claim was under ERISA.

The deduction will make a huge difference in my taxable income. TurboTax is in error here because ERISA discrimination claims are not even considered in the TurboTax query when deciding whether to deduct legal fees and costs. I want my hours of wasted time back. grr...

The relevant internal revenue code is: 26 U.S. Code § 62. This lawyer does an awesome job explaining it all very clearly: https://disabilitydenials.com/disability-insurance-claims/can-you-deduct-attorney-fees-and-expenses-incurred-to-obtain-your-disability-benefits-under-the-new-trump-tax-plan/

PatriciaV

Employee

Legal fees associated with discrimination lawsuits are deductible above the line, on the first page of your 1040, to determine your adjusted gross income. However, a few limitations apply here as well. You must be the party who was discriminated against and your lawsuit must have resolved after October 22, 2004. You can't deduct more than the amount you recover in the lawsuit. This deduction goes on Form 1040 Schedule 1 Line 8 and can include court costs as well as attorney fees.

To claim these fees in TurboTax, you can make a negative adjustment on Schedule 1.

Go to Wages & Income
Less Common Income
Select Miscellaneous Income, 1099-A, 1099-C
Select Other Reportable Income
Any Other Taxable Income? Select, yes.
On the Other Taxable Income page: enter description: “Deductible Attorney Fees”
Amount: enter in the adjustment amount as a negative number.

This adjustment will appear on Schedule 1 Line 8z (reducing Total Income) and is included on the amount on Form 1040 Line 9.

@pricefam31

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pricefam31

@PatriciaV
thank you for responding on Sunday eve!
yes this income is entered at schedule 1, line 8z.

The “adjustment” of legal fees/costs needs to be entered at schedule 1, line 24h.

I was unable to manipulate the turbotax forms to enter the information properly.
Please note that an ERISA disability settlement is considered “discrimination” for this deduction. 🙂