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:

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 Qualified attorney fees paid after 10/22/04 for unlawful discrimination amount.
4. Continue with the interview process to enter all of the appropriate information.

Additional information from 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 of unlawful discrimination under various provisions of federal, state, and local law listed in section 62(e), a claim against the U.S. 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 Schedule 1 (Form 1040), line 22. 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 U.S. Government, or the claim under section 1862(b)(3)(A) of the Social Security Act.
• The deduction you're claiming can't be more than the amount of the judgment or settlement you're 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.

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.