You may be able to deduct attorney fees and court costs paid to recover a judgment or settlement for a claim of unlawful discrimination.
Per IRS Publication 525 Taxable and Nontaxable Income, page 29:
Deduction for costs involved in unlawful discrimination suits. You may be able to deduct attorney fees and court costs paid to recover a judgment or settlement for a claim of unlawful discrimination under various provisions of federal, state, and local law listed in Internal Revenue Code section 62(e), a claim against the United States government, or a claim under section 1862(b)(3)(A) of the Social Security Act. You can claim this deduction as an adjustment to income on Form 1040, line 36. The following rules apply:
- The attorney fees and court costs may be paid by you or on your behalf in connection with the claim for unlawful discrimination, the claim against the United States government, or the claim under section 1862(b)(3)(A) of the Social Security Act.
- The deduction you are claiming can't be more than the amount of the judgment or settlement you are including in income for the tax year.
- The judgment or settlement to which your attorney fees and court costs apply must occur after October 22, 2004.
To enter this information in to the TaxAct® program:
- From within your TaxAct return (Online or Desktop), click on the Federal tab. On smaller devices, click in the upper left-hand corner, then select Federal.
- Click Other Adjustments to expand the category and then click Other Adjustments at the bottom of the list
- Enter the data on the screen titled Other Adjustments - Miscellaneous
- The fees will be reported as 'UDC' in the Adjusted Gross Income section of the 1040