To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. You may be able to deduct expenses from that income.

To enter attorney fees in your TaxAct® return (Online or Desktop):

1. Click on the Federal tab. On smaller devices, click in the upper left-hand corner, then select Federal.
2. Click Other Adjustments to expand the category, then click Other Adjustments
3. Enter the information under Qual. atty fees paid after 10/22/2004 for unlawful discrimination:

Additional information from 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.