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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, on page 30:

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 ofunlawful discrimination under various provisionsof federal, state, and local law listed in section62(e), a claim against the U.S. Government, ora claim under section 1862(b)(3)(A) of the Social Security Act. You can claim this deductionas an adjustment to income on Schedule 1(Form 1040), line 22. The following rules apply.

  • The attorney fees and court costs may bepaid by you or on your behalf in connectionwith the claim for unlawful discrimination,the claim against the U.S. Government, orthe claim under section 1862(b)(3)(A) ofthe Social Security Act.
  • The deduction you're claiming can't bemore than the amount of the judgment orsettlement you're including in income forthe tax year.
  • The judgment or settlement to which yourattorney fees and court costs apply mustoccur after October 22, 2004.

To enter this information into the TaxAct® program:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
  2. Click Other Adjustments in the Federal Quick Q&A Topics menu to expand, then click Other adjustments.
  3. Enter the data on the screen titled Other Adjustments - Miscellaneous, then click Continue.
  4. The fees will be reported as "UDC" in the Adjusted Gross Income section of IRS Form 1040.

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.


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